With Manila Water now serving 8.2 million customers domestically, our strategic approach has focused on replicating our successful model in Metro Manila’s East Zone to other key metropolitan areas in the
Philippines while expanding regionally starting with Vietnam, Indonesia, and Myanmar. We remain bullish about our growth prospects and see an addressable market of 32.8 million by 2018. Our active pursuit of new geographies will not only diversify our portfolio but also strengthen our presence in the region.

POPULATION:
16.7 MILLION
51 %
3 %
POPULATION:
1.1 MILLION
41 %
POPULATION:
13.3 MILLION 5 %
POPULATION:
1.7 MILLION

www.manilawater.com
• The Manila Water Story
• Latest news and activities
• Customer feedback
• Career opportunities in Manila Water
www.manilawater.com/ir
• Latest events and investor updates
• Profiles of Board of Directors and Management Committee
• SEC filings and disclosures
• Stock information and shareholder services
www.manilawater.com/sustainability
• Vision, Policy and Commitments
• Sustainability Framework
• Sustainability Reports of Manila Water and subsidiaries
• Sustainable programs
2
VISION
To become a leader in the provision of water, wastewater and other environmental services which will empower people, protect the environment and enhance sustainable development.
CORE VALUES
INTEGRITY AND PRIMACY OF THE PERSON
We are a Company of professionals whose unique roles and individual contributions toward corporate goals provide us with concrete opportunities to develop character and purpose in our lives.
DIGNITY OF WORK
Our Company rouses a sense of pride and satisfaction in the fruits of our talents and efforts, which we place at
Manila Water’s service, as part of a dynamic and well-knit team.
PRIDE IN EXCELLENCE
We strive for excellence because turning out the highest quality products and services is the most fitting tribute to our customers and to our society, company, colleagues and ourselves.
MANILA WATER ANNUAL REPORT 2013
CONCERN FOR OTHERS
We believe that contributing to social development through the communities we serve and the natural environment that we help protect is the very essence of our corporate existence. Showing a genuine concern for the welfare of others is indispensable in the way we do our business.
COMMITMENT TO NATIONAL DEVELOPMENT
We strongly support all efforts towards the development of the economy and our nation in general, because we realize that the problems affecting our nation and society impact our Company’s own long-term viability.

4
6
Manila Water at a Glance
Triple Bottomline
8 Chairman's Message
14 President's Report
18 East Zone
20 Boracay Island Water
22 Clark Water
24 Laguna Water
26 Vietnam Affiliates
28 Sustainability Programs
30 Board of Directors
36 Management Committee
40 Management Team
42 Corporate Governance Report
52 Enterprise Risk Management Report
55
Management’s Discussion and Analysis of Financial and Operating Results
62 Report of the Audit and Governance Committee
63 Statement of Management’s Responsibility
64 Report of Independent Auditors
66 Financial Statements
76 Notes to Financial Statements
148 Shareholder Information
3

(in million cubic meters)
599
MCM
Water consumed by customers in the East Zone and subsidiaries, including
Vietnam affiliates
(East Zone)
11.2
Water lost due to leakage and pilferage in the network
(East Zone, '000)
922
Water service connections in the East Zone, with additional
26,000 new connections in 2013
402 416 420 570 599
4
MANILA WATER ANNUAL REPORT 2013

PHP 5,752
Consolidated net income including East
Zone, domestic subsidiaries and
Vietnam affiliates
(in million pesos)
PHP 72,858
Total assets, growing by 9% from previous year
East La Mesa Intake Tower, Quezon City
(in pesos per share)
PHP 0.764
Dividend per share on a payout ratio of 35%
5

Manila Water incorporates the triple requirements for sustainable development—social responsibility, environmental sustainability and financial viability—as the foundation for all its undertakings. Summarized into people, planet and profit, Manila Water continuously strives to create value for its stakeholders and shareholders, always mindful of its impact on the environment as well as the community it serves.
12
6
MANILA WATER ANNUAL REPORT 2013

28.1
PHP 5,752
Taguig North Sewage Treatment Plant
7

8
MANILA WATER ANNUAL REPORT 2013

FELLOW SHAREHOLDERS,
2013 was another banner year for the Philippine economy.
GDP growth outpaced the rest of Southeast Asia and most other global economies. The country also earned investment grade status from global rating agencies. As the year drew to a close, however, the upbeat atmosphere was subdued by a series of natural disasters that hit the country.
In much the same manner, Manila Water started the year with much optimism as it geared for further business expansion. However, we were confronted by a couple of setbacks by mid-year. First, we faced regulatory challenges in the Rate Rebasing process in our East Zone concession, and second, we failed to close a transaction in Indonesia which could have expanded our business with another full concession. While these were not ideal outcomes, we look at both events as a test of our Company’s organizational character.
Manila Water has proven its resilience over the past 16 years. We have faced challenging business environments and changing regulatory regimes. We have consistently overcome these challenges and difficulties because of the quality of our team and the expertise and professionalism that we have built over the years. This is what has earned us the respect and trust of the public. Over the years, we have worked hard to gain the confidence of our customers, business partners and all our stakeholders by continuously improving our level of service, maintaining financial prudence, and investing in our people.
This approach has yielded consistent results.
Notwithstanding the continuing challenges we face in the
East Zone, we are pleased that 2013 was still a record year as we achieved Php15.93 billion in consolidated revenues and Php5.75 billion in net income. In addition, we more than doubled the net income contribution of our new business operations to Php678 million.
We continue to build on our portfolio of new businesses.
We had two acquisitions in 2013, one in Vietnam and the other in the Philippines. We subscribed to 31.47% of Saigon Water Infrastructure Corporation which we envision to be our vehicle to further expand our presence in the Vietnam water and used water sector. We also acquired the water reticulation system of a leading industrial park in the Philippines. More recently, we signed a Memorandum of Understanding with the Yangon
City Development Council to advance our exploratory efforts in entering the water space in Myanmar.
Taking all these into consideration, we look at 2014 with optimism. On behalf of the Board of Directors, I thank the
Manila Water team for your hard work and perseverance.
I also extend my deep appreciation to our customers, shareholders and partners for your continued support, faith and trust in the Company.
FERNANDO ZOBEL DE AYALA
Chairman
9

SPECIAL SECTION
A
th

The story begins in 1834 in what was Las Islas
Filipinas. At a time when Manila’s business houses were engaged mainly in executing customers’ orders for buying and selling of commodities for a fee, landowner and entrepreneur Domingo Roxas and his young industrial partner Antonio de Ayala created a company that would engage in agribusiness. They built a distillery to derive greater value from cane sugar.
It was small but it represented a Philippine step from the purely agricultural to the little-unexplored realm of industry.
banking. Banco Español-Filipino—which issued the first Philippine paper currency—later became Bank of the Philippine Islands.
One of de Ayala’s sons-in-law was the multitalented
Jacobo de Zobel: businessman, numismatist, archaeologist, writer; mayor of Manila at age 30; he read and spoke 11 languages, including Arabic and Etruscan. While engaged in the family business and serving on the Banco Español-Filipino board, he introduced the first streetcar system in Manila.
When it had grown and become well known, the distillery exported various products to Europe and garnered awards and recognition for their quality.
This showed that an enterprise in the rural and remote Philippines could compete in the international arena and win. Its best selling brand, Ginebra San
Miguel, remains today.
After the turn of the 20 th century, the tramcar service was sold to an American company that renamed it
Manila Electric Railway and Light Co., or MERALCO.
The distillery was also sold, to businessman Carlos
Palanca; at the time, it had 3,000 employees, including Filipino and French scientists. It had become a de facto incubator of the country’s chemical industry.
When a Spanish royal decree established El Banco
Español-Filipino de Isabela II, Southeast Asia’s first private commercial bank, Antonio de Ayala was appointed director representing the Manila business community. Thus began the Ayala involvement in

SPECIAL SECTION
A decision attributed to Roxas’ son Jose Bonifacio was the purchase of land in San Pedro de Makati that extended all the way to the banks of the Pasig River. The property was deemed to have little value and had undergone a series of ownership changes when the company bought it for P52,800 in 1851.
When the family’s assets were apportioned in 1914, the Makati property went to the cousins Jacobo, Alfonso, and Mercedes Zobel de Ayala. They and their successors would bring Ayala to what it is today.
Mercedes’ husband, Col. Joseph McMicking, provided a new vision for Ayala, and for developing what remained of the Makati property.
The venture was uncertain and at first difficult. When success came, it signified an unprecedented leap in the evolution of local real estate development. From it emerged the Philippines’ first modern Central
Business District.
Ayala moved further from being a family business to being more corporate in character. After a century, it began to employ professional managers. It incorporated in 1968 and became publicly listed in 1976.
With professional teams, Colonel McMicking and his successors in management—Jacobo’s son Enrique Zobel and Alfonso’s son Jaime
Zobel—steered Ayala to great success in the 20 th century. Today,
Jaime Augusto and Fernando Zobel de Ayala share leadership of a modern conglomerate with a much broader impact on the life of the nation.

Ayala has found that the entrepreneurial spirit that has driven it for 18 decades is shared by many Filipinos, including merchants in its malls, retailers of Globe products, overseas workers’ families that bank with
BPI, residents’ cooperatives in Manila Water’s distribution zone, and micro-entrepreneurs who benefit from BanKO’s microfinance services.
As Ayala continues its expansion and diversification, it keeps an enthusiastic eye for the many thousands of people who will begin and build their own businesses through the ones it creates.
“By emphasizing a social purpose, we achieve a more complete form of doing business and generate a cycle of prosperity,” says the chairman and chief executive officer, Jaime Augusto Zobel de Ayala.
“We have always believed that the development of every individual foregrounds the development of the whole,” adds his brother Fernando, president and chief operating officer.
Ayala’s reputation for integrity, product and service quality, financial strength and prudence, and high professionalism has made it a partner of choice for major international corporations and the employer of choice for many of the best and brightest talents. The respect and trust it enjoys is deemed to have been earned by few other businesses in the
Philippines, and these are the core values that it treasures the most.
The conglomerate’s leadership, with Jaime Zobel de Ayala as chairman emeritus, constantly promotes these values, including a deep commitment to Philippine development and to the Filipino.
Ayala’s narrative of pioneering innovation continues into a future full of new opportunity and promise.

DEAR SHAREHOLDERS,
Manila Water ended 2013 poised for expansion amidst a very challenging regulatory environment in its primary concession. The Rate Rebasing process in the East Zone that started in March 2012 culminated in a disappointing outcome in September 2013. Notwithstanding such difficulties, Manila Water Company as a whole achieved excellent operating and financial results - with significant contributions coming from its various new business operations units.
THE YEAR THAT WAS
Sustained Net Income Growth
Our consolidated revenues grew to Php15.93 billion in
2013, 9% higher than the previous year. The increase was driven by advances in both the platform and expansion businesses. In the East Zone, revenue growth was anchored by a 1.5% billed volume expansion and a 2% improvement in average effective tariff resulting from a 3.2% CPI adjustment at the beginning of 2013.
Our domestic operating subsidiaries, on the other hand, contributed revenues of Php957 million, 30% more than in the prior year. This layer of new growth helped elevate our Company's total revenue increase close to a doubledigit clip.
Meanwhile, our cost of services and operating expenses rose by 10% to Php4.65 billion. We recognized other income (net of expense) of Php375 million, slightly declining from 2012. Our two bulk water companies in
Vietnam - Thu Duc Water and Kenh Dong Water - grew by
42% in net income contribution to Php294 million.
The combination of these factors resulted in an EBITDA for 2013 of Php11.65 billion, 9% better than that of 2012.
Healthy revenue growth, complemented by prudent spending and improved efficiencies, enabled us to preserve EBITDA margin at 73%. Net income amounted to
Php5.75 billion, 5% higher than last year and a new record for Manila Water.
14
MANILA WATER ANNUAL REPORT 2013

Challenging 2013 Rate Rebasing process
As early as March 30, 2012, we commenced our third Rate
Rebasing exercise with MWSS through the submission of our proposed Business Plan for the 2013-2037 concession period. The plan focused on Manila Water's recommended strategic direction in the areas of service accessibility, service continuity, water security and environmental sustainability. While we were able to submit our Plan on a timely basis, subsequent process challenges unfortunately delayed the rate rebasing timetable.
As a result, we were unable to get approval for our new
Business Plan from MWSS within 2012 towards a January
2013 implementation as contemplated in the Concession
Agreement. It was only on September 12, 2013 that MWSS released their final tariff determination for the East Zone: a negative adjustment of 29.47% on the 2012 average basic water charge. This drastic downward adjustment threatened to impair Manila Water's ability to function and to set back the consistently excellent performance of its service obligations in the East Zone.
The MWSS decision undermines our submitted Business
Plan which proposes to sustain the gains attained in the
East Zone in the past 16 years. Those are accomplishments we have achieved over the years and take pride in as a
Company. Among them, we are especially proud to have doubled the number of customers served in our service area to over six million. In the process of that expansion, we brought clean water to almost two million people in poor and marginalized communities. Our service has attained 99% reliability, and has consistently passed tests of good quality. We have achieved world-class operating efficiencies, especially in terms of non-revenue water that now stands at an outstanding 11% mark. Our organizational productivity has improved by a quantum of 10x over the last 16 years. Above all, our tariffs have remained affordable and competitive vis-a-vis other markets in the Philippines and the region.
It is for these reasons that we raised our objection to the
MWSS decision, by filing a Dispute Notice on September
24, 2013 with the International Chamber of Commerce.
This formally commenced the arbitration process which is the dispute resolution mechanism provided for in the
Concession Agreement. Tariffs existing at the time the
Dispute Notice was filed remain in effect while we await the outcome of the arbitration proceedings.
The rate rebasing delay of over a year affected our revenues, cash flow, and the execution of our capital expenditure program in 2013. We will nevertheless do our best to minimize its adverse impact on our operating and financial performance moving forward.
Calibrated Capital Expenditure program
Our capital expenditures in 2013 for the East Zone were limited to on-going and service reliability projects in the absence of an approved Rate Rebasing Business Plan. The
Company's East Zone spent a total of Php4.68 billion, 35% less than the Php7.22 billion spent the previous year.
As and when we successfully conclude Rate Rebasing ‘13, we expect capital expenditures to ramp up from 2015 and onwards. Unlike the early years of our Company's history, capital works in Manila Water have grown increasingly complex, graduating from simple pipe networks to sophisticated water and used water treatment plants and networks. For example, we are presently embarking on the 100 million liters per day Ilugin Used Water Treatment project which will cost approximately USD150 million. At project completion, this will be the largest used water treatment plant in the country.
We thus have to determine how to improve our capital works management process, how to level up our program and project management competencies, and how to enhance our cost efficiencies. We need to ensure that we can put in place the appropriate organizational design and talent resources to meet the demands of the bulge in projects that is expected post-arbitration.
New Businesses Expansion
More than ever, it has become clear how important it is to diversify our portfolio by pursuing new business opportunities outside the East Zone. Fortunately, we have formalized and structured our new business thrust as early as three years ago when we articulated our "VIP Strategy" and supported it with a dedicated business development organization. In line with this strategy, we have aspired to expand our presence into select metropolitan areas in the Philippines, as well as in Vietnam and Indonesia. Our approach is to be flexible in selecting the business model along the water value chain that is most appropriate and relevant to each respective market and its unique considerations.
15

I am pleased to note that our foray into markets outside the East Zone has begun to gain traction. In the aggregate, our new business operations units contributed the 12% of
Manila Water's consolidated net income in 2013, up from a mere 1% just three years ago.
We do not intend to stop there. We are expanding our presence in Vietnam through Saigon Water Infrastructure
Corporation (Saigon Water), an affiliate we intend to use as vehicle for developing and activating other water ventures in Vietnam. Saigon Water is a strategic partnership between Manila Water and HCMC Infrastructure
Investment Company (CII), which has a track record in assembling important infrastructure projects in Vietnam.
Indonesia also remains a market of high interest for us, even though we were unable to complete our acquisition of a major stake in Palyja (Jakarta's West Concessionaire) last year. We are now looking for opportunities outside
Jakarta, and are currently exploring a PPP project in Sumatra.
Closer to home, Manila Water, through its subsidiary
Laguna Water, acquired Laguna Technopark's water and sewerage system in December 2013. Between this and our presence in the Clark Freeport Zone, Manila Water has arguably become the premier water service provider to our country's industrial park sector.
We are also doing exploratory work in Myanmar with the
Yangon City Development Council in partnership with
Mitsubishi Corporation to replicate our successful NRW
Reduction Project in Zone 1 of Ho Chi Minh City.
5,311 9,887 9,411 7,689 5,637
2009 2010 2011 2012 2013
CAPITAL EXPENDITURES
(IN PHP MILLIONS)
NET INCOME CONTRIBUTION OF NEW BUSINESS OPERATIONS
2011
2012 2013
1%
7% 12%

These are certainly positive developments in the area of new business. From the new ventures in the pipeline, together with many upcoming expansion initiatives within the sphere of our existing subsidiaries, we hope to sustain the trajectory of growth and to pursue further business diversification for our Company
2014 AND BEYOND: THE JOURNEY AHEAD
On behalf of the men and women of Manila Water, let me assure you that we are committed to sustaining and building growth for our Company, and that we will always do our best to rise above the challenges in this exciting journey ahead of us.
I look to 2014 with great optimism and confidence as we work towards achieving our goals - resolving our differences with MWSS on Rate Rebasing '13 plan for the East Zone; keeping healthy our platform East Zone business; and establishing an ever-expanding Manila
Water footprint across various geographies.
GERARDO C. ABLAZA, JR.
32.8M
11.3M
1
Cebu Bulk Water Treatment Facility
17

18
MANILA WATER ANNUAL REPORT 2013

922,000
Water Service Connections
433.6
mcm
Billed Volume
11.2
%
Non-Revenue
Water
East Zone Expansion Area
Rizal
19

20
MANILA WATER ANNUAL REPORT 2013

5,647
Water Service Connections
3.6
mcm
Billed Volume
13.4
%
Non-Revenue
Water
Boracay Island
21

22
MANILA WATER ANNUAL REPORT 2013

9.8
mcm
Billed Volume
1,975
Water Service Connections
6.2
%
Non-Revenue
Water
Clark Freeport Zone
23

24
MANILA WATER ANNUAL REPORT 2013

11.4
mcm
66,000
18.0
%
Sta. Rosa, Laguna
25

26
MANILA WATER ANNUAL REPORT 2013

120.4
mcm
20.6
mcm
Ho Chi Minh City
27

15
partners
85%
La Mesa Dam
28
MANILA WATER ANNUAL REPORT 2013

29

GERARDO C. ABLAZA, JR.
ANTONINO T. AQUINO
FERNANDO
ZOBEL DE AYALA
30
MANILA WATER ANNUAL REPORT 2013

JOSE L. CUISIA, JR.
JOHN ERIC T.
FRANCIA
JAIME AUGUSTO
ZOBEL DE AYALA
31

RICARDO
NICANOR N.
JACINTO
SHERISA P. NUESA
DELFIN L. LAZARO
32
MANILA WATER ANNUAL REPORT 2013

OSCAR S. REYES
SOLOMON M.
HERMOSURA
MASAJI SANTO
33

Filipino, 53, has served as Chairman of Manila Water since May 1997. He is the Vice Chairman, President and COO of Ayala Corporation. He is also: Chairman of Ayala Land, Inc., AC International Finance Ltd., AC
Energy Holdings, Inc. and Hero Foundation, Inc.; Co-
Chairman of Ayala Foundation, Inc.; Director of Bank of the Philippine Islands, Globe Telecom, Inc., Integrated
Micro-Electronics, Inc., LiveIt Investments, Ltd., Ayala
International Holdings Limited, Honda Cars Philippines,
Inc., Isuzu Philippines Corporation, Pilipinas Shell
Petroleum Corp., Manila Peninsula and Habitat for
Humanity International; Member of The Asia Society and INSEAD East Asia Council; Chairman of Habitat for Humanity’s Asia-Pacific Capital Campaign Steering
Committee; and Member of the Board of Trustees of
Caritas Manila, Pilipinas Shell Foundation, Kapit Bisig para sa Ilog Pasig Advisory Board and National Museum.
Filipino, 54, has served as Vice Chairman of Manila Water since May 1997. He also holds the following positions:
Chairman and CEO of Ayala Corporation; Chairman of
Globe Telecom, Inc., Bank of the Philippine Islands, and
Integrated Micro-Electronics, Inc.; Co-Chairman of Ayala
Foundation, Inc.; Vice Chairman of Ayala Land, Inc. and
AC Energy Holdings, Inc.; Chairman of Harvard Business
School Asia-Pacific Advisory Board and Asia Business
Council; Vice Chairman of Makati Business Club;
Member of Harvard Global Advisory Council, Mitsubishi
Corporation International Advisory Committee, JP
Morgan International Council, and International Business
Council of the World Economic Forum; and Philippine
Representative to the APEC Business Advisory Council.
Filipino, 60, has served as Director of Manila Water since November 2009, and President and CEO since June
2010. He also holds the following positions: Chairman of AAA Water Corporation, Boracay Island Water
Company, Inc., Cebu Manila Water Development, Inc.,
Clark Water Corporation, Manila Water Total Solutions
Corp., Manila Water Asia Pacific Pte. Ltd., Manila Water
South Asia Holdings Pte. Ltd., Thu Duc Water Holdings
Pte. Ltd., and Kenh Dong Water Holdings Pte. Ltd;
Chairman and President of Manila Water Consortium,
Inc. (formerly Northern Waterworks and Rivers of Cebu,
Inc.), and Manila Water International Solutions, Inc.; Vice
Chairman of Laguna AAAWater Corporation; Co-Vice
Chairman of both the Board of Directors and Executive
Committee of Globe Telecom, Inc.; Member of the Board of AG Holdings Limited, Asiacom Philippines, Inc., Ayala
Energy Holdings (formerly Michigan Power, Inc.), ACST
Business Holdings, Inc., Ayala Foundation, Inc., Azalea
International Venture Partners Limited, and LiveIT
Investment Ltd.; Member of the Board of Management of Thu Duc Water B.O.O Corp.; and President of Manila
Water Foundation.
Filipino, 66, has served as Director of Manila Water since
April 1998. He is also: President and Director of Ayala
Land, Inc.; Chairman of Alveo Land Corp., Cebu Holdings,
Inc., Cebu Property Ventures & Development Corp.,
Ayala Hotels, Inc., Makati Development Corp., North
Triangle Depot Commercial Corp., and Station Square
East Commercial Corp.; President of Fort Bonifacio
Development Corp., Alabang Commercial Corp., Accendo
Commercial Corp., Aurora Properties, Inc., Ceci Realty,
Inc., and Vesta Property Holdings, Inc.; and Member of the Board of Ayala Foundation, Inc., Makati Commercial
Estate Association, Inc., Hero Foundation, Inc. and
Bonifacio Arts Foundation, Inc.
Filipino, 69, has served as Independent Director of
Manila Water since April 2010. He is the Ambassador
Extraordinary and Plenipotentiary to the United States of
America. He also holds the following positions: Chairman of The Covenant Car Company, Inc.; Vice Chairman of Philippine American Life and General Insurance
Company and SM Prime Holdings; Director of BPI-Philam
Life Assurance Co.; CV Starr Chairman of Corporate
Governance for the Asian Institute of Management; and
Convenor-Trustee of Philippine Business for Education.
34
MANILA WATER ANNUAL REPORT 2013

Filipino, 42, has served as Director of Manila Water since
April 2010. He is also: President of AC Energy Holdings,
Inc. and AC Infrastructure Holdings Corporation; and
Director of Integrated Micro-Electronics, Inc., LiveIt
Investments Ltd., and Integreon.
Filipino, 53, has served as Director of Manila Water since
April 2011. He is President and CEO of the Institute of
Corporate Directors; President of Nicanor P. Jacinto, Jr.
Foundation; and Director of LLL Holdings, Inc.
Filipino, 67, has served as Director of Manila Water since May 2002. He is also: Chairman and President of
Michigan Power, Inc., and A.C.S.T. Business Holdings, Inc.;
Chairman of Atlas Fertilizer and Chemicals Inc., Azalea
Intl. Venture Partners, Ltd., and Philwater Holdings
Company, Inc.; Director of Ayala Land, Inc., Integrated
Micro-Electronics, Inc., Ayala DBS Holdings, Inc., AYC
Holdings, Ltd., Ayala International Holdings, Ltd., Bestfull
Holdings Limited, AG Holdings, AI North America, Inc.,
Probe Productions, Inc., and Empire Insurance Company; and Trustee of Insular Life Assurance Co., Ltd.
Filipino, 59, has served as Independent Director of
Manila Water since April 2013. Her other significant positions include: President and Director of ALFM
Mutual Funds Group; Director of Far Eastern University,
East Asia Computer Center, PSi Technologies, and FERN
Realty; and Trustee of Institute of Corporate Directors,
ING Foundation (Philippines), and Financial Executives
Institute of the Philippines where she also holds the position of Executive Vice President.
Filipino, 67, has served as Independent Director of
Manila Water since February 2005. His other positions include: Director of Ayala Land, Inc., Bank of the
Philippine Islands, PLDT Communications and Energy
Ventures, Inc., Basic Energy Corporation, Cosco Capital
Inc., Sun Life Financial Philippines, Inc., and Manila
Electric Company where he also holds the position of President and Chief Executive Officer; President of
Meralco PowerGen Corporation; Chairman of Pepsi Cola
Products Philippines, Inc., Meralco Industrial Engineering
Services Corporation, CIS Bayad Center, Meralco Energy,
Inc., Redondo Peninsula Energy, Inc., and PacificLight Pte.
Ltd.; Member of the Advisory Board of Philippine Long
Distance Telephone Company; and Member of the Board of Trustees of One Meralco Foundation, Inc., Pilipinas
Shell Foundation, Inc., SGV Foundation, Inc. and El Nido
Foundation, Inc.
Japanese, 56, has served as Director of Manila Water since July 2012. Senior Vice President and COO in the
Environment and Infrastructure Business Division of
Mitsubishi Corporation; former President of Mitsubishi
Chile Limitada; and former General Manager of the Plant
Project Division of Mitsubishi Corporation.
Filipino, 51, has served as Corporate Secretary of Manila
Water since April 2006. He is the General Counsel,
Corporate Secretary and Compliance Officer of Ayala
Corporation, and the CEO of Ayala Group Legal. He also serves as Corporate Secretary of Ayala Land, Inc., Globe
Telecom Inc., Integrated Micro-Electronics, Inc., Ayala
Foundation, Inc. and Philwater Holdings Company, Inc., among others.
35

GERARDO C. ABLAZA, JR.
President and CEO
GEODINO V. CARPIO
Group Director,
Operations
LUIS JUAN B. ORETA
Chief Finance Officer and
Treasurer
Group Director, Corporate
Finance and Governance
VIRGILIO C. RIVERA, JR.
Group Director,
Corporate Strategy and
Development
FERDINAND M. DELA CRUZ
Group Director, East Zone
Business Operations and
Corporate Strategic Affairs

RUEL T. MARANAN
Group Director,
Corporate Human
Resources
RODELL A. GARCIA
Chief Technology Adviser
Group Director,
Information Technology
ABELARDO P. BASILIO
Group Director,
Strategic Asset Management
37

Corporate Finance and Governance Group
Last year was a year of continued preparation for expansion beyond the Metro Manila franchise. Standing true to our commitment to transparency, the Accounting department secured its ISO certification while our Contracts and Vendor
Management, Treasury, and Logistics departments renewed their certifications. In addition, we improved our accounting processes by integrating the SAP platform into all the subsidiaries, allowing us to consolidate our financials with greater ease. We also extended our risk management program to our operating subsidiaries to devolve risk-mitigation efforts. This resulted in an increase in the Company’s ERM maturity level to 3.6 from 3.1.
In the financial markets, we took advantage of the low interest rate environment when we secured a Php5.0 billion fixed-rate loan from Metrobank which was competitively priced to market, further bringing down our average cost of debt to its lowest level.
Meanwhile, the USD100 million fixed-rate loan from IFC which has a tenor of 18 years, is the longest provided by the multilateral agency to the Philippine water sector. We also supported our subsidiaries by closing a Php1.33 billion and another Php800 million loan from the Development Bank of the Philippines, for projects in Laguna and Cebu, respectively. We will continue to be steadfast in our commitment to transparency, and ultimately deliver lasting value to our shareholders and stakeholders.
Corporate Strategy and Development Group
On our third rate rebasing exercise, fundamental differences in our rate determination led us to opt for arbitration to resolve the matter with our regulator and are aiming to conclude this by June
2014. Meanwhile, the Company’s new business ventures grew more than 45% and are now contributing 12% to the Company’s total profits. We also strengthened our presence in Vietnam by acquiring a stake in Saigon Water Infrastructure Corporation giving Manila Water a platform to pursue other parts of the water services value chain, and other markets outside of Ho Chi Minh
City. Onward to 2014, we look forward to the commencement of our operations in Cebu in the middle of the year. We will continue our pursuit of new business opportunities, constantly anchored on Manila Water’s overall business strategy to maximize business in the East Zone while forging strategic partnerships in the
Philippines and other Southeast Asian countries.
East Zone Business Operations and Corporate Strategic
Affairs Group
The first third-party conducted Customer Satisfaction (CSAT)
Survey resulted in very high ratings across all Manila Water
Business Areas and way above benchmark indices for utilities in the Asia Pacific Region. Customer centricity remained to be a focus, rolling out various programs, including an intensified key account management approach to better serve the customers of our customers. We refreshed our brand identity by integrating our tagline, ‘care in every drop’, into the logo to embody its ideals of caring for its customers, stakeholders, and the environment. The swirl symbolizes the Company’s dynamism, drive for excellence and aspirations for growth. In
2014, billed volume and revenue growth of the East Zone will continue despite the aggressive individualization projects and the delayed implementation of the Rate Rebasing exercise. We shall improve customer experience through faster issue resolution, to be reflected in the results of the CSAT at the end of the year. As more used water facilities come on-line, the Business Areas will continue to intensify programs to educate our stakeholders about used water in order to protect our rivers and the environment.
38
MANILA WATER ANNUAL REPORT 2013

Corporate Human Resources Group
We pushed the talent agenda on all fronts of our HR practices to ensure that we support the business growth – be it in talent development, rewards management, employee engagement and line involvement in HR initiatives implementation. As we continue to build the talent pipeline, we enhanced our rewards programs to ensure stronger alignment and emphasis on performance as the differentiator that will make Manila Water competitive and sustainable. We launched the new job and salary structure and the Corporate Incentive Plan which is our strongest statement that performance is critical to the success of the business. As a testament to the continued partnership between Management and the Manila Water Employees Union, the Collective Bargaining
Agreement 2013-2016 was concluded peacefully considering that there was an organization structure review. In 2014, we will continue to engage and sustain the organization as we work towards higher levels of productivity, customer-centricity, quality service and synergy in the service of our customers and other stakeholders.
Operations Group
This year was marked by feats in the areas of operational excellence, innovation, and knowledge development. The Company achieved the 10 million safe man-hours without lost time accident milestone. We were recognized by the DENR/LLDA and the
European Union’s Green Philippine Islands of Sustainability through its EcoSwitch Award, for consistent environmental and sustainable operations. The Operations Management System was rolled out which integrates our ISO systems and sets the standard framework for continuous improvement. Innovation projects generated sustainable savings of Php152.8M in operating expenses. In 2014, we will continue our innovation story with the introduction of renewable sources of energy to our operations. We have begun preparations to implement the biggest local solar panel installation in an industrial setting, as well as creating mini-hydroelectric facilities to harvest the pressure and flow from aqueducts to supply power to our facilities. Cost efficiencies in water supply will be leveraged from the Demand-Based Network Management System, supplying water at the right pressure and time, thereby dynamically adjusting to the changing demand.
Strategic Asset Management Group
In 2013, the Strategic Asset Management Group laid down the framework for asset management and enhanced implementation of programmed capital expenditures. To effectively manage the existing assets, the Group successfully (1) evaluated the Business
Risk Exposure of 22 critical facilities and (2) developed an Asset
Management Plan by which defines the strategic and operational programs that will optimize the value of the asset at least life cycle cost. Moving forward, Manila Water will continue to build massive infrastructures to sustain and expand our water and used water services within and beyond the East Zone. This necessitates a CAPEX optimization program which provides improvement initiatives focused on the project cycle process, a change in organization structure, and efficient resource management. We envision to reach the advanced Asset Management maturity level in the next few years, a step towards being known as an efficient and world-class Asset Management organization.
Information Technology Group
The Information Technology Group took steps in 2013 towards improving its structures, processes and skills, covering the areas of systems implementation, information security, IT operations and governance. The results of these efforts are reflected in the stability of IT operations, implementation of a standard
SAP platform across all the Company’s operating units, and the enhancement of the East Zone Business Intelligence system.
The improvements are targeted to continue in 2014 especially as more complex projects come into the fore such as the interfacing of IT and Operations data for improved analytics, and the implementation of the Enterprise Asset Management system and Records Management System, among others. We will also implement in 2014 a cloud-based office automation and collaboration platform which is envisioned to enhance productivity while reducing operating costs. We will likewise focus on our disaster recovery capability and information security as the systems landscape changes significantly with our expansion beyond the East Zone.
39

Ma. Victoria P. Sugapong
Chief Risk Officer and Deputy Controller
Rosenni A. Basilio
Department Head, Financial Planning
Marilou G. Bago
Department Head, Financial Accounting
Lizelle Z. Dimacuha
Department Head, Tax Management
Cristina F. Estandarte
Department Head, Contracts and Vendor
Management
Ma Lourdes P. Miranda
Department Head, Internal Audit
Allan B. Patdu
Department Head, CAPEX Control and
Support
Jhoel P. Raquedan
Chief Legal Counsel
Maritess M. Regala
Department Head, Logistics
Karoline C. Sangalang
Department Head, Financial
Controllership
Jocelyn Frances P. Sison
Department Head, Treasury
Josephine F. Pagdanganan
Senior Legal Counsel
Patricia Carmen D. Pineda
Investor Relations Manager
Janine T. Carreon
Department Head, Talent Management and Leadership Development
Gerardo M. Lobo, II
Department Head, Employee Engagement
Yvette B. Sonza
Department Head, Manpower Planning and Organizational Development
Andrian B. Villanueva
Department Head, Total Rewards
Management
Alessandro Jose T. Zamora
Department Head, Security Management
Bernardo C. Mañosca
General Manager, Boracay Island Water
Company, Inc.
Joseph Michael A. Santos
General Manager, Cebu Manila Water
Development
Melvin John M. Tan
General Manager, Laguna AAAWater
Corporation
Mark S. Orbos
OIC, Regulation and Public Policy
Noelito S. Abesamis
Department Head, Technical Regulation
Daisy S. Garcia
Department Head, Compliance Assurance
Mark Jonas B. Rivera
Corporate Strategy Manager
Fernando L. Busuego, III
Department Head, Branding and Market
Research
Carla May B. Kim
Department Head, Sustainable
Development/Manila Water Foundation
Nestor Eric T. Sevilla, Jr.
Department Head, Corporate
Communications
Arnold Jether A. Mortera
Chief Technical Officer
Jesus D. Laigo
General Manager, Clark Water
Corporation
Ronnie D. Lim
Country Manager, Vietnam
Esmeralda R. Quines
East Zone Business Area Operations Head
Elizabeth M. Cruz
East Zone Business Support Head
Selwyn P. Cabaluna
Department Head, Technical Support
Services for Used Water
Orlando A. Villareal
Department Head, Technical Support
Services for Water Network
Maria Mabelle G. Amatorio
Area Business Manager, Rizal
Shoebe Hazel B. Caong
Area Business Manager, Cubao
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MANILA WATER ANNUAL REPORT 2013

Ernesto P. Francisco
Area Business Manager, San Juan-
Mandaluyong
Elmer M. Largo
Area Business Manager, Makati
Sharon May D. Marcial
Area Business Manager, Balara
Christian Mhel C. Marcos
Area Business Manager, Marikina
Marvin J. Panday
Area Business Manager, Pasig
Janice E. Ruiz
Area Business Manager, Taguig-Pateros
Diana Lou B. Gomez
Department Head, Program and Policy
Development
Amelia P. Pineda
Department Head, Billing and Collection
Victoria G. Santos
Department Head, Customer Service and
Stakeholder Management
Kristine Jessah R. Guevarra
OIC, Demand Forecasting and TMS
Management
William Samuel U. Sy
Head, Manila Water Total Solutions
Jose Ronaldo P. Cruz
Department Head, Systems and Solutions
Mauricio D. Franco, Jr.
Department Head, Service Management
Elmer D. Pevidal
Department Head, IT Governance
Gabriel V. Tuason
Department Head, Information Security and Audit
Estelita C. Orodio
Head, Operations Services
Robert Michael N. Baffrey
Department Head, Used Water
Operations
Evangeline M. Clemente
Head, Technical Services
Joemar B. Emboltorio
Department Head, Water Supply
Operations
Mark Tom Q. Mulingbayan
Department Head, Environment
Dexter M. Quibuyen
Department Head, System Analytics
Brian Frank F. Tamin
Section Head, Treatment Facilities
Rafael F. Facto
Section Head, Distribution Grids
Jaime T. Galinato
Department Head, Water Source
Mario S. Rodriguez
Headworks and Conveyance Manager
William C. Alcantara
Department Head, Energy
Jose M. Cadorna
Department Head, Fleet Management
Joannatess B. De Vera
OIC, Operations Management
Bernaliza B. Espina
OIC, Laboratory Services
Jommel Omar A. Gomez
Department Head, Business Continuity
Allan Roy B. Ortiz
Department Head, Bonifacio Water
Corporation Operations
Roel Stephen M. Picart
Department Head, Maintenance Services
Thomas T. Mattison
OIC, Project Delivery Group
Frederick S. Sangalang
Department Head, Engineering
Isagani B. Colocado
Headline Project Delivery Manager
Francisco D. Landayan, Jr.
Headline Project Delivery Manager
Alicia M. Manalo
Headline Project Delivery Manager
Belinda B. Patdu
Headline Project Delivery Manager
Sarah Monica E. Bergado
OIC, Project Delivery Support
Liezel T. Lee
OIC, Safety Solutions
Maria Elizabeth D. Tayamora
Department Head, Quality Assurance
Maidy Lynne B. Quinto
Department Head, Strategic Asset
Planning
Carlos Noel P. Carlos, Jr.
Department Head, Asset Investment and
Management Support
Baltazar P. De Guzman
Department Head, Asset Management
Samuel D. Hernando
Department Head, Program Management
Christine Aubrey N. Emboltorio
Water Systems Analysis and Modelling
Manager
Jubie D. Torres
Asset Performance Evaluation and
Optimization Manager
Rey Ann C. Dela Cruz
OIC, Used Water System
Analysis and Planning
41

The improvement, systemization, and transparency in governance are overseen by the Board of Directors
(the “Board”) who also provides direction towards the formulation of sound corporate strategies. The
Board provides strategic guidance to achieving fairness, transparency, and accountability in all major financial and business dealings of the Company, with the objective of equally protecting the interests of all investors and stakeholders.
The Board has eleven (11) members, elected by the stockholders during their annual meeting. The members of the Board so elected hold office for one (1) year and until their successors have been elected and qualified in accordance with the By-Laws. The Board oversees the management of the Company and provides directions towards the formulation of a sound corporate strategy.
In the performance of their duties, the members of the
Board must exercise their best and unbiased judgment in the utmost interest of the Company.
The members of the Board are enjoined to regularly attend seminars and conferences and are continuously updated on the developments in policy, regulations, and standards on good corporate governance. Furthermore, under the Company’s Manual of Corporate Governance
42
MANILA WATER ANNUAL REPORT 2013

(the “Manual”), the members of the Board are provided with such resources, trainings and continuing education to enable each member to actively, independently, and judiciously participate in Board and Committee meetings.
Newly elected members of the Board are required, under the Manual, to undergo a series of comprehensive orientation programs for them to have a working knowledge of the statutory and regulatory requirements affecting the
Company. They are also required to keep abreast with industry developments and business trends in order that they may promote the Company’s competitiveness and sustained progress. Attendance in a corporate governance seminar conducted by a duly recognized private or governmental institution is also a mandatory requirement prior to the assumption of office.
The Company also provides general access to training courses to its directors as a matter of continuous professional education as well as to maintain and enhance their skills as directors, and keep them updated in their knowledge and understanding of the Company’s business.
The Board Committees are also allowed to hire independent legal counsel, accounting, or other consultants to advise them when necessary.
In compliance with the requirements of the law, the
Company’s Manual, and the rules and regulations of the
Securities and Exchange Commission (SEC), the Company has three (3) independent directors as members of the
Board. A director is considered independent if he holds no interests or relationships with the Company that may hinder his independence from the Company or its management which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
The Company also fully subscribes to the requirements of independence under existing laws, rules and regulations, in particular, SEC Memorandum Circular No. 16 Series of
2002. The Company ensures that its independent directors have all the qualifications and none of the disqualifications specified in the said SEC Memorandum Circular.
The Chairman of the Board is Fernando Zobel de Ayala, a non-executive director who assumed the position in 1997.
Gerardo C. Ablaza, Jr., the only executive director of the
Board was appointed President and CEO in June 2010.
The Board is supported by five committees: the (i) Executive
Committee, (ii) Audit and Governance Committee, (iii)
Nomination Committee, (iv) Remuneration Committee, and (v) Committee of Inspector of Proxies and Ballots, all of which are required to report to the Board a summary of the actions taken on matters submitted to them for consideration.
EXECUTIVE COMMITTEE
The Executive Committee is composed of five (5) directors.
The Executive Committee acts by majority vote of all its members on such specific matters within the competence of the Board as may, from time to time, be delegated to it in accordance with the Company’s By-Laws, except with respect to certain matters as specified in the By-Laws, the Manual and the law. The Executive Committee meets as needed.
AUDIT AND GOVERNANCE COMMITTEE
The Audit and Governance Committee is composed of four
(4) directors and chaired by an independent director. The
Committee serves as the check and balance mechanism and is expected to bring positive results in supervising and supporting the management of the Company. It is responsible for ensuring the development of, compliance with, and periodic review of corporate governance and financial reporting policies and practices of the Company.
The Committee’s role has been expanded to include risk management functions.
Under its Charter, the Audit and Governance Committee recommends the appointment of the Company’s external auditors and has the power to appoint the Chief
Audit Executive. The Committee’s concurrence to the replacement, re-assignment or dismissal of the Chief
Audit Executive is also required.
The Audit and Governance Committee meets quarterly before the quarterly board meetings and when needed.
All members of the Committee including the Independent
Directors are required to possess adequate understanding of accounting and auditing principles in general and of the Company’s financial management systems and environment in particular.
NOMINATION COMMITTEE
The Nomination Committee is tasked to install and maintain a process to ensure that all directors to be nominated to the Board during the Annual Stockholders'
Meeting have all the qualifications and none of the disqualifications stated in the Manual and existing laws and regulations. Furthermore, the Committee is also tasked to review and evaluate the qualifications of all persons nominated to positions in the Company which require appointment by the Board. This Committee, which is composed of four (4) directors, is chaired by an
Independent Director, acts by the majority vote of all its members.
43

BOARD COMMITTEES
Committee
Executive
Chairman
Fernando
Zobel de Ayala
Members
Gerardo C. Ablaza, Jr.
Antonino T. Aquino
John Eric T. Francia
Ricardo Nicanor N. Jacinto
Audit and
Governance
Nomination
Oscar S. Reyes Ricardo Nicanor N. Jacinto
Jose L. Cuisia, Jr.
Sherisa P. Nuesa
Jose L. Cuisia, Jr. Jaime Augusto Zobel de Ayala
John Eric T. Francia
Oscar S. Reyes
Remuneration Oscar S. Reyes Gerardo C. Ablaza, Jr.
Fernando Zobel de Ayala
Jose L. Cuisia, Jr.
Inspector of
Proxies and
Ballots
Ma. Lourdes P.
Miranda
Atty. Jhoel P. Raquedan
Representative of
External Auditor
BOARD MEETING ATTENDANCE
DIRECTOR No. of Meetings
Attended/Held
4/4 Fernando Zobel de Ayala
Jaime Augusto Zobel de Ayala 3/4
Gerardo C. Ablaza, Jr.
4/4
Delfin L. Lazaro
Antonino T. Aquino
Ricardo Nicanor N. Jacinto
4/4
4/4
4/4
John Eric T. Francia
Masaji Santo
Sherisa P. Nuesa
Jose L. Cuisia, Jr.
Oscar S. Reyes
4/4
3/4
4/4
4/4
4/4
%
Present
100%
75%
100%
100%
100%
100%
100%
75%
100%
100%
100%
COMMITTEE ATTENDANCE
NO. OF MEETINGS ATTENDED/HELD 1
Committee
Nominations Remuneration
Fernando
Zobel de Ayala
Jaime Augusto
Zobel de Ayala
Gerardo C.
Ablaza, Jr.
Antonino T.
Aquino
John Eric T.
Francia
Ricardo
Nicanor N.
Jacinto
Jose L. Cuisia,
Jr.
Oscar S. Reyes
Sherisa P.
Nuesa
Delfin C.
Gonzalez, Jr.
2
Executive Audit and
Governance
10/10
10/10
10/10
10/10
10/10
1 In 2013 and during the incumbency of the director
2 Mr. Gonzalez was replaced by Ms. Nuesa in 2013
6/6
6/6
6/6
5/5
1/1
1/1
1/1
1/1
1/1
2/2
2/2
2/2
2/2
44
MANILA WATER ANNUAL REPORT 2013
REMUNERATION COMMITTEE
The Remuneration Committee, composed of four (4) members and chaired by an Independent Director, is tasked with the power and duty to determine and approve all matters relating to the remuneration and benefits of the Company’s officers and directors. The Remuneration
Committee continuously evaluates and recommends for Board approval, pertinent guidelines on executive compensation, including non-monetary remuneration.
INSPECTOR OF PROXIES AND BALLOTS COMMITTEE
The Inspector of Proxies and Ballots Committee, which meets before the Annual Stockholders' Meeting, is empowered to validate proxies issued by the stockholders and to determine if the same are in accordance with existing laws, rules and regulations of the SEC. The members of the Committee are also the default inspector of ballots and tabulator of votes during the
Annual Stockholders' Meeting and for this purpose is required to coordinate closely with the Office of the
Corporate Secretary.
BOARD MEETINGS
The organizational meeting of the Board is held immediately after the annual election of directors while regular meetings are held quarterly. Under the By-Laws, special meetings may be called by the Chairman, Vice-
Chairman, President or at the instance of a majority of the members of the Board.
The Company’s directors are mandated to act in good faith, with due care and in the best interests of the
Company and all its shareholders, including minority shareholders, based on all relevant information. Each director is expected to attend board meetings and applicable committee meetings and to ensure that other commitments will not interfere in the discharge of their duties. The Board may, to promote transparency, require the presence of at least one Independent Director in all its meetings. For the past ten years, the Board of Directors of Manila Water has not conducted a meeting without the presence of at least one Independent Director.
Under the Manual, a director’s absence or nonparticipation for whatever reason in more than fifty percent (50%) of all meetings, both regular and special, in a year is a ground for temporary disqualification in the succeeding election.
BOARD ATTENDANCE
All the members of the Board attended at least fifty percent (50%) of the Board meetings held last year.

During the 2013 Annual Stockholders’ Meeting held at
Fairmont Makati, the Chairman of the Board of Directors,
President and CEO of the Company and the Chairman of the Audit and Governance Committee along with all the other directors and executive officers of the Company were in attendance.
QUORUM
Unless otherwise provided by law or regulations, all regular or special meetings of stockholders, the attendance of the stockholders constituting at least a majority of the outstanding voting capital stock of the Company must be present in person or by proxy in order to constitute a quorum and the affirmative vote of the stockholders constituting at least a majority of the outstanding voting capital stock of the Company shall be necessary to approve matters requiring stockholders’ action. As provided by the Corporation Code, which is adhered to and complied with by the Company, stockholders constituting at least two thirds of the outstanding capital stock of the Company must be present in person or by proxy in order to approve any of the following corporate measures: (i) the amendment of the
Articles of Incorporation, (ii) adoption and/or amendment of the By-Laws, (iii) sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property, (iv) incurring, creating or increasing bonded indebtedness, (v) increase or decrease of capital stock, (vi) merger or consolidation of the Company with another company, (vii) investment of corporate funds in another corporation or business or for any purpose other than the primary purpose for which it was organized, and
(viii) the dissolution of the corporation.
BOARD REMUNERATION
The Board shall determine a level of remuneration for Directors that shall be sufficient to attract and retain directors and compensate them for attendance at meetings of the Board and Board Committees, and performance of numerous responsibilities and undertaking certain risks as a Board member.
The By-Laws provide that, by resolution of the Board, each director shall receive a reasonable per diem allowance for his attendance at each meeting of the Board or a committee of the Board. As compensation, the Board shall receive and allocate an amount of not more than one percent (1%) of the income before income tax of the
Company during the preceding year. Such compensation shall be determined and apportioned among the directors in such manner as the Board may deem proper. On April
11, 2011, the stockholders approved the amendment of the By-Laws, giving the Board of Directors the sole authority to determine the amount, form and structure of the fees and other compensation of the directors.
The Compensation and Remuneration Committee shall have the responsibility for recommending to the
Board the fees and other compensation for directors. In discharging this duty, the Committee shall be guided by the objective of ensuring that the compensation should fairly pay directors for work required of the Company’s size and scope. In a special meeting held on April 11,
2011, the Board approved an increase in the board remuneration. The approved per diem allowances of each of the members of the Board consists of an additional fixed annual retainer fee of Php500,000; Php200,000
2013 Annual Stockholders' Meeting
Fairmont Hotel, Makati City
45

for each meeting of the Board actually attended; and
Php50,000 for each attendance in a committee meeting from Php20,000. This increase in board remuneration was approved by the stockholders in its Annual Stockholders'
Meeting of even date.
VISION, MISSION AND CORPORATE OBJECTIVES
To ensure good governance of the Company, the Board is mandated under the Manual to establish a vision and mission and strategic objectives and key policies and procedures for the management of the Company, as well as the mechanism for monitoring and evaluating the performance of the Management, especially that of the
President and CEO. The Board is enjoined to periodically review the vision, mission, corporate strategic objectives and key policies of the Company in order to sustain the Company’s market competitiveness and enhance shareholder value.
BOARD EVALUATION
The Audit and Governance Committee, in coordination with the Legal and Corporate Governance Department, conducts an annual evaluation of the Board Committees' and Board of Directors’ performance. The Committee usually sends the directors a survey form to rate the Board’s performance in terms of independence, leadership, expertise, and governance. The survey also includes an assessment of Manila Water’s support services on board matters, specifically on the quality, quantity and timing of information sent and/or presented to the Board, as well as the conduct of board meetings. The survey form includes an assessment of the performance of the
President and CEO’s key results areas and identifies areas for improvement on the President’s key competencies.
MANAGEMENT
The Management is primarily responsible for the operations of the Company. As part of its accountability, the Management is required to provide the Board with complete, adequate and timely information on the operations and affairs of the Company.
The roles of the Chairman and the President were made separate to ensure an appropriate balance of power, increased accountability, and greater capacity of the Board for independent decision-making. The Manual requires the Company to disclose the relationship between the
Chairman and the President, if any, in its annual report to the SEC.
SUCCESSION PLANNING
The Board, with the assistance of the Remuneration
Committee and the Company’s Corporate Human
46
MANILA WATER ANNUAL REPORT 2013

Resources Group, has adopted a professional development program for employees, officers and senior management. The Company has put in place a program to determine the skills necessary for particular positions in the Company and identifies key talents for purposes of succession. The Company’s Corporate Human Resources
Group has adopted a master plan for the corporate structuring, recruitment, performance assessment, compensation management, and career development all geared to improve key competencies of employees, officers and senior management and cultivating them to become the Company’s business leaders. it to propose improvements on the Company’s policies.
Finally, the Department also provides timely updates to the Board and Management on the current and best practices on corporate governance in the industry and the global scene.
INTERNAL AUDIT
Internal Audit (IA) conducts an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps the organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
COMPLIANCE OFFICER
In order to ensure adherence to the principles and best practices in corporate governance, the Board appoints a
Compliance Officer for the Company.
The Compliance Officer’s primary role is to operationalize the Manual and monitor the overall compliance with its provisions and requirements. Whenever necessary, the
Compliance Officer also recommends the penalty for the violation of the Manual. Moreover, the Compliance
Officer is tasked with the duty to communicate with the
SEC on matters relating to the Company’s compliance with the Manual and the clarification of matters required by the said Commission.
IA reports functionally to the Audit and Governance
Committee. It supports the Audit and Governance
Committee in the effective discharge of its oversight role and responsibility. The audit team consists of
Certified Internal Auditor, Certified Public Accountants,
Certified Information Systems Auditor, Certified in Risk and Information Systems Control and Civil Engineer for
Construction Audit.
Luis Juan B. Oreta, who is the Company's Chief Finance
Officer and Treasurer, is the Compliance Officer designated to ensure adherence with the best practices in corporate governance.
CORPORATE GOVERNANCE OFFICE
To better focus on improving corporate governance across the organization, Manila Water reorganized and merged its Legal and Corporate Governance offices, thus, creating a Legal and Corporate Governance Department
(the “Department”). The Department formulates and implements initiatives and policies on corporate governance and reports directly to the Compliance
Officer and under the supervision of the Audit and
Governance Committee. The Department has been active in the continuous reorientation of all Manila Water employees and business partners on the Company’s governance policies, particularly on matters relating to transparency, honesty and fair dealing, and prompt and adequate disclosure of material information, among other initiatives.
Among the more important initiatives of the Department is the identification of gaps and challenges on corporate governance practices across the organization which allows
Annually, a risk-based internal audit plan is prepared and approved by the Audit and Governance Committee. IA conducts its activities guided by the Institute of Internal
Auditors’ (IIA) Professional Practices Framework consisting of the International Standards for the Professional
Practice of Internal Auditing (Standards), the Definition of
Internal Auditing and the Code of Ethics. In June 2012, the
Internal Audit function was rated “Generally Conforms” after a thorough third-party Quality Assessment Review
(QAR) by the Institute of Internal Auditors Inc. The rating, considered the highest possible rating in connection with the QAR, confirmed that IA’s activities are conforming to and in compliance with the International Standards for the
Professional Practice of Internal Auditing. The Standards requires that the external assessment be conducted at least once every 5 years.
CHIEF RISK OFFICER
The Chief Risk Officer (CRO) oversees the entire risk management function and leads the development, implementation, maintenance and continuous improvement of Enterprise Risk Management (ERM) process and tools. The CRO is the Vice-Chairman of the
Risk Management Executive Committee (RMEC) who directs the Enterprise Risk Management Department in facilitating the ERM process throughout Manila Water and in collecting and analyzing key business risk information for reporting to the Risk Management Executive
Committee.
47

ENTERPRISE RISK MANAGEMENT
The Enterprise Risk Management (ERM) Department is responsible for developing risk management tools, methodologies and processes and leads the implementation and dissemination of ERM across Manila
Water. The ERM facilitates, supports and integrates the
ERM process across Manila Water in coordination with the
CRO and ERM Champions. Moreover, the ERM develops, maintains, monitors and enhances the ERM framework and process.
CORPORATE GOVERNANCE MANUAL
The Manual contains the governance principles that the
Company applies in all its undertakings and supplements
Manila Water’s Articles of Incorporation and By-Laws. The adoption of the Manual instituted the policies on (i) the
Board of Directors’ and management’s roles, functions and responsibilities in relation to good governance; (ii) the institution of training for the Board Directors, executive directors and employees and evaluation of the Board and Management’s performance; (iii) the enhanced roles of the Corporate Secretary and Audit and Governance
Committee in corporate governance; (iv) related party transactions; (v) conflict of interest; and, (vi) disclosures.
As a key policy, the members of the Board and key executives of the Company are required to disclose to the
Board any material interest, whether direct or indirect, they may have in any transaction or matter that directly affects the Company. The directors are required to comply with all disclosure requirements of the Manual and the
Securities Regulations Code (SRC) and its Implementing
Rules and Regulations and voluntarily disclose any conflict of interest, whether actual or potential, upon its occurrence. The disclosure of any conflict of interest, including related party transactions, is to be made fully and immediately. In case related party transactions exist, it is the Company’s policy that complete information on such conflict be immediately disclosed and if a director or officer is involved, the director or officer concerned shall not be allowed to participate in the decision-making process. The policy also mandates that a director who has a continuing conflict of interest of a material nature shall be required to resign, or if the Board deems appropriate, be removed as a member of the Board.
Related party transactions entered into by the Company with one or more of its directors or officers are voidable at the option of the Company unless the transaction is deemed fair and reasonable under the circumstances and conducted in arm’s length and neither the presence nor vote of the concerned director or officer is necessary to approve such transaction.
The Board commits, at all times, to adequately and timely disclose all material information that could potentially affect Manila Water’s share price and such other information that are required to be disclosed pursuant to the SRC and its Implementing Rules and Regulations as well as other relevant laws. This information includes but is not limited to results of earnings, acquisition or disposal of significant assets, off balance sheet transactions, changes in Board membership as well as changes in shareholdings of directors and officers, and remuneration of directors and officers and related party transactions.
The Company shall disclose its corporate governance practices, corporate events calendar, and other material information on its website in a timely manner.
The Company shall avoid related party transactions.
In instances where related party transactions cannot be avoided, the Company shall disclose all relevant information on the same, including information on the affiliated parties and the affiliation of directors and principal officers.
The Company’s Manual was revised in compliance with the SEC’s Revised Code of Corporate Governance
Memorandum Circular No. 6, Series of 2009.
The revised Manual strengthened protection to shareholders, particularly the minority, through the inclusion of additional provisions on transparency on business operations; communication of important information from Management to the Board and from the Board to the shareholders; disclosures on and evaluation of directors’ and Management’s performance; qualifications and disqualifications of directors; participation of independent directors in all meetings of the Board; and full and consistent compliance with financial, legal and regulatory requirements. The Manual is available for download at the Company’s website.
CODE OF BUSINESS CONDUCT AND ETHICS
The Company’s commitment to the highest standards of ethics, good governance, competence and integrity is institutionalized in other aspects of the business with the adoption of the Code of Business Conduct and Ethics
(the “Code”) in 2006. The Code addresses the issues and relationships between and among the Company’s directors, officers and employees, and its customers, suppliers, business partners, government offices, and other stakeholders.
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MANILA WATER ANNUAL REPORT 2013

The Code consolidates and enhances the Company’s existing policies on conflict of interest, corporate entertainment and gifts, and insider trading. The Code also includes provisions on honesty and fair dealing, prompt and adequate disclosure of material information, and the powers and duties of the Office of the Compliance
Officer in relation to the implementation and monitoring of the Code. A copy of the Code can be downloaded from the Company’s website.
Copies of the Code are distributed to all officers and employees of the Company to inform them of the basic mandates and policies of the Company. As a policy, an officer or employee who becomes aware of any violation of the Code is required to immediately notify the Office of the Compliance Officer of the fact of such violation. The
Office of the Compliance Officer, through the assistance of the Legal and Corporate Governance Department and the Corporate Human Resources Group, shall take all the necessary action to investigate any reported violations.
Any officer or employee who commits a violation of this Code shall be subject to disciplinary action, without prejudice to any civil or criminal proceedings that the
Company or regulators may file for violation of existing laws. The Office of the Compliance Officer is responsible for implementing and monitoring compliance with the
Code and shall also have the authority to decide any issues that may arise in connection with the implementation of the Code.
STOCKHOLDER RIGHTS
Under the Company’s By-Laws, the affirmative vote of stockholders as of the record date constituting at least a majority of the outstanding voting capital stock of the
Company is necessary to approve matters requiring stockholders’ action.
In all items for approval, each share of stock entitles its registered owner as of the record date to one vote. At each election for directors, every stockholder shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected, or to cumulate his votes by giving one candidate as many votes as the number of such directors multiplied by the number of his shares shall equal, or by distributing such votes at the same principle among any number of candidates.
The Company has two classes of shares, common and participating preferred shares. Both classes of shares have equal voting rights.
The Company continues its practice of offering its shareholders an equitable share of the Company’s profits.
In 2013, the Board of Directors approved the dividend payout of 35% of the prior year’s net income. The participating preferred shares participate in the earnings at a rate of 1/10 of the dividends paid to a common share.
The Company paid a total of Php1.91 billion as dividends in 2013.
The Manual also provides for stockholders’ pre-emptive rights to subscribe to the capital stock of the Company, right of inspection of corporate books and records, as well as annual report and financial statements, right to information on all material items upon request and for a legitimate corporate purpose, and appraisal rights as provided under the law.
The revised Manual presently provides that the minority shareholders shall have the right to propose the holding of a meeting as well as the right to propose items in the agenda of the meeting, provided that the items proposed are for legitimate business purposes. Upon request and for a legitimate purpose, a shareholder shall be provided with periodic reports which disclose personal and professional information about the directors and officers and certain other matters such as their holdings of the Company’s shares, dealings with the Company, relationships among directors and key officers, and the aggregate compensation of directors and officers. As a policy, notices and agenda of the Annual Stockholders’
Meeting are disclosed to the public at least two (2) months before the scheduled meeting. The shareholders have an opportunity in the Annual Stockholders’ Meeting to ask questions and raise their issues regarding the
Company, its directors and the performance of its executive officers. The minutes of the meeting record the shareholder questions and corresponding answers given by the directors and officers of the Company.
Copies of the minutes are available for download at the
Company’s website.
Further rights of the Company’s shareholders include their respective rights to participate in decisions concerning fundamental corporate changes such as amendments to the Company's constitution, authorization of additional shares and transfer of all or substantially all assets, which in effect result in the sale of the Company, as provided in the Corporation Code and adhered to by the Company.
49

DISCLOSURES
As the Company continues to pursue its commitment to promote corporate values of transparency and accessibility to material information for all its stakeholders, the Company faithfully complies with all reportorial and disclosure requirements of the law as well as the relevant rules and regulations issued by the SEC and the Philippine
Stock Exchange (PSE). The Company adopts a policy of prompt and accurate disclosure of all material information to the investing public. governance across the organization, including dealings with its business partners and customers, Manila Water constantly updates its website, www.manilawater.com, with a portion dedicated to corporate governance. The
Corporate Governance section of the website contains all disclosures made by the Company to the PSE and SEC which can be readily accessed and downloaded.
The website also has a dedicated Investor Relations section that houses all information that may be required by the investors, shareholders and stakeholders. The site has been enhanced to be user-friendly and is accessible to the public at all times.
INVESTOR RELATIONS DEPARTMENT
The Investor Relations (IR) Department is tasked to regularly keep the Company's investors and stakeholders informed of the developments in the Company's business.
For this purpose, the IR conducts quarterly investors and analysts’ briefings and regular meetings with shareholders, fund managers and institutional investors to keep them updated on relevant material information and details on transactions of the Company. The IR is easily reached through phone, electronic mail or through the Company website for any stockholder, stakeholder or investor concerns.
EXISTING CORPORATE GOVERNANCE POLICIES AND
PRACTICES
Among the more important policies in governance is the
Insider Trading Policy, which prohibits directors, officers and all employees, including those engaged in confidence from trading Manila Water shares within a certain designated period usually before and after the release of any material information to the public.
PUBLIC OWNERSHIP
The Company is compliant with the requirement of the
PSE on minimum public ownership with 58.7% of its shares subscribed and owned by the public. In compliance with the requirements of the PSE, the Company regularly and timely discloses its public ownership report and immediately makes a public disclosure of any change thereon.
INDEPENDENT EXTERNAL AUDITOR AND
REMUNERATION
The principal accountants and external auditors of the
Company, as appointed in the last Annual Stockholders’
Meeting, is the accounting firm of SyCip, Gorres, Velayo &
Company (SGV & Co.). The audit fee of SGV & Co. for 2013 is Php1,864,000 exclusive of VAT. Where the Company engages the services of SGV and Co. for non-audit related services or consultancy, the Company, as a matter of policy, ensures that the fees received by SGV & Co. on such non-audit related services are not more than the approved audit fees in order not to impair the external auditor’s independence from the Company.
COMPANY WEBSITE
In the pursuit of the Company’s thrust to continuously improve awareness in best practices in the conduct of its business and operations especially in corporate
Another policy that has been in continuous effect is the policy on acceptance of corporate entertainment and gifts. This policy prohibits all officers and employees from accepting corporate entertainment and gifts from suppliers, contractors and other business partners which can influence the manner by which an officer or employee discharges his duties.
The Company’s guidelines specifying conflict of interest situations involving all employees and their relatives up to the fourth degree of consanguinity and/or affinity, including common law relationships, have been strengthened. All such existing contracts/arrangements by employees and their relatives are required to be terminated immediately and correspondingly reported to the line manager and the Office of the Compliance
Officer, as required under the Code. Any exception to the guidelines must be approved by the Compliance Officer.
Other policies of the Company that have been in continuous and effective implementation are the policies on: (i) reporting of fraudulent or dishonest acts and (ii) internal control systems which includes the Company’s
Capital Expenditures and Investments Committee that oversees bidding systems and grants approvals for capital expenditures.
50
MANILA WATER ANNUAL REPORT 2013

RECOGNITION
The Company’s perseverance in its commitment to uphold the highest standards of good governance has been confirmed and recognized by several reputable award-giving bodies. The Corporate Governance Asia in its
Annual Recognition Awards cited the best practices of the
Company, while the Institute of Corporate Directors in its
Corporate Governance Scorecard Project awarded Manila
Water with the Gold Award for governance. Manila Water was also given the distinction of belonging to Platinum
Plus Awardees – a recognition given to companies that consistently achieve the Gold Award for four consecutive years. The Company was also awarded its second Bell
Awards by the Philippine Stock Exchange for being one of the five publicly-listed companies that uphold the highest standard of corporate governance.
CORPORATE GOVERNANCE CAMPAIGN
Awareness of the Company’s corporate governance practices among its stakeholders is a key initiative of the
Legal and Governance Department. This is achieved by conducting corporate governance orientations and by communicating the corporate governance practices of the Company to the public through the website, annual reports, seminars and other literature. Furthermore,
Manila Water offers various trainings, programs and workshops for its directors, officers and employees in order to ingrain good corporate practices in its everyday operations.

Acknowledging the need for active management of risks across the organization, Manila Water has established an
Enterprise Risk Management (ERM) Program which aligns the Company’s strategy, process, people, technology and knowledge. Under the Program, Manila Water aims to appropriately respond to risks and manage them to increase shareholder value and enhance its competitive advantage.
The Board of Directors provides oversight on risk management activities and approves the ERM Policy and any subsequent changes or amendments. The Audit and Governance Committee provides a report to the Board on its review of the status of the top corporate risks, the effectiveness of Manila Water’s ERM process and the Internal Audit assessment of the
Company’s ERM maturity level. The risk management system of Manila Water is reviewed and assessed annually by the
Internal Audit Department using a risk maturity assessment framework aligned with global best practices to determine the system’s adequacy and effectiveness.
52
MANILA WATER ANNUAL REPORT 2013

The Manila Water ERM Framework and ERM Processes are based on the ISO 31000:2009 standard which contains standards relating to risk management codified by the
International Organization for Standardization.
The ERM Framework and ERM Process have been cascaded to all of Manila Water’s departments. The same Framework and Process have been rolled out to the Company’s subsidiaries in Boracay, Clark and Laguna to ensure the attainment of their respective growth objectives. This initiative considered the unique business and risk environments where these subsidiaries operate.
Manila Water’s ERM Program also includes cascading the framework to affiliates in Cebu and Vietnam.
In 2013, the ERM Department assumed the responsibility of managing the Company’s insurance contracts. This enabled the department to fully understand the risks surrounding various dimensions of the Company’s operations. In addition, centralizing insurance management led to a quicker procurement of needed contracts, as well as making these contracts custom-fit to respond to the risks identified.
Manila Water’s commitment to achieve corporate social responsibility and sustainability objectives have driven the Company’s ERM Department to innovate and further strengthen the Program. The ERM Department carried out the following initiatives in 2013:
• The ERM Framework and ERM Process were cascaded to all Project Managers to ensure the attainment of their respective objectives.
• Each group has a trained “ERM Group Partner” to lead the identification of their respective top group risks, and formulate and monitor implementation of the risk management action plans of their group.
• The ERM Department rolled out an enhanced risk management process across the organization and completed the drill-down of 2013 top enterprise risks with the help of ERM Champions, ERM Group Partners and Risk Owners. Each top enterprise risk was divided into different sub-risks which were mapped to specific departments and groups responsible for developing risk mitigation strategies to address the sub-risk.
• Key Risk Indicators (KRIs) have been identified through the Risk Owners and the Risk Management
Executive Committee (RMEC). KRIs reflect the
Company’s risk appetite through set thresholds and quantify risk levels. These also validate or invalidate risk management decisions.
The RMEC, composed of Manila Water’s Management
Committee and the Chief Risk Officer, determines the most significant risks facing the Company. Management of the Top Corporate Risks, which have been mapped up to the department level, was delegated to the appropriate
Risk Owners.
Risk Owners formulate and commit to a risk management plan, monitored by the ERM Department, which defines specific action points, accountability, and timeline. The status of the Top Corporate Risks is regularly discussed at the RMEC and is reported to the Audit and Governance
Committee and the Board of Directors.
The Top Corporate Risks of Manila Water cover the following areas:
Strategic: These risks arise when there are forces in the environment that could either put the Company out of business, or significantly change the fundamentals that drive its overall objectives and strategies.
Operations: These risks arise when operations are inefficient and ineffective in executing the Company’s business model, satisfying customers and achieving the
Company’s quality cost and time performance objectives.
Compliance: These risks arise when there is noncompliance with prescribed organization policies, procedures or laws and regulations that result in penalties, fines, etc.
Financial: These risks arise when cash flows and financial risks are not managed cost effectively to maximize cash availability, reduce uncertainty in currency, interest rate, credit and other financial risks, or move cash funds quickly and without loss of value to wherever they are needed most.
53

Manila Water Company holds the exclusive right to provide water and used water services to the eastern side (“East Zone”) of Metro Manila under a Concession
Agreement (“CA”) entered into between the Company and Metropolitan Waterworks and Sewerage System
(“MWSS”) in August 1997. The original term of the concession was for a period of 25 years to expire in 2022.
The Company’s concession was extended by another 15 years by MWSS and the Philippine Government in 2009, thereby extending the term from May 2022 to May 2037.
The Company provides water treatment, water distribution, sewerage and sanitation services to more than six million people in the East Zone, comprising a broad range of residential, commercial and industrial customers.
The East Zone encompasses Makati, Mandaluyong, Pasig,
Pateros, San Juan, Taguig, Marikina, most parts of Quezon
City, portions of Manila, as well as the following towns of
Rizal: Angono, Antipolo, Baras, Binangonan, Cardona, Jala-
Jala, Morong, Pililia, Rodriguez, San Mateo, Tanay, Taytay and Teresa.
fee payments, and to earn a rate of return on these expenditures for the remaining term of the concession.
Aside from the East Zone, the Group currently has three operating subsidiaries in the Philippines, namely Laguna
AAAWater Corporation (“LWC”), Boracay Island Water
Company (“BIWC”) and Clark Water Corporation (“CWC”).
It also has presence in Vietnam through a leakage reduction project in Ho Chi Minh City and two bulk water companies, namely Thu Duc Water B.O.O Corporation
(“TDW”) and Kenh Dong Water Supply Joint Stock
Company (“KDW”).
The Group continues to explore new business opportunities. In the first quarter of 2012, the Company through Manila Water Consortium (formerly Northern
Waterworks and Rivers of Cebu), signed a Joint Investment
Agreement with the Provincial Government of Cebu for the development and operation of a bulk water supply system in the province. Construction of the transmission line is ongoing and is expected to start operations in the second quarter of 2014.
Under the terms of the CA, the Company has the right to the use of land and operational fixed assets, and the exclusive right, as agent of MWSS, to extract and treat raw water, distribute and sell water, and collect, transport, treat and dispose used water, including reusable industrial effluent discharged by the sewerage system in the
East Zone. The Company is entitled to recover over the concession period its operating, capital maintenance and investment expenditures, business taxes, and concession
In October 2013, Manila Water South Asia Holdings Pte.
Ltd. (“MWSAH”), a wholly-owned subsidiary of Manila
Water in Singapore, completed its subscription to
18,370,000 primary shares of Saigon Water Infrastructure
Corporation (“Saigon Water”), equivalent to 31.47% of the outstanding capital stock of Saigon Water. Saigon
Water is a Vietnamese company listed in the Ho Chi Minh
City Stock Exchange. It aims to become the first fully integrated company in the Vietnam water and used water infrastructure sector.
55

The Group’s key financial performance indicators are discussed below:
CONSOLIDATED FINANCIAL PERFORMANCE
Total operating revenues
Total cost and expenses, excluding depreciation and amortization
Other income/(expense) – net
Equity share in net income of associates
Others
EBITDA
Depreciation and amortization
Income before other income/expenses
Interest income/(expense) – net
Income before income tax
Provision for income tax
Net income
Non-controlling interests
Net income attributable to MWC
2013
15,925,817
4,653,609
375,264
293,975
81,289
11,647,472
2,494,763
9,152,709
(1,560,575)
7,592,134
1,811,573
5,780,561
28,199
5,752,362
2012
14,553,068
4,228,846
393,637
206,762
186,875
10,717,859
2,320,075
8,397,784
(1,299,439)
7,098,345
1,595,053
5,503,292
12,849
5,490,443
For the years ended December 31
(in thousand Pesos)
Increase/
(Decrease)
1,372,749
424,763
(18,373)
87,213
(105,586)
929,613
174,688
754,925
(261,136)
493,789
216,520
277,269
15,350
261,919
8%
9%
20%
7%
14%
5%
119%
5%
%
9%
10%
-5%
42%
-57%
9%
Manila Water Company Inc. posted Php5,752 million in net income for the year 2013, 5% higher than the Php5,490 million recorded the previous year. Consolidated operating revenues grew by 9% to Php15,926 million. The increase was driven largely by the continued expansion in the East Zone, with the 1.5% billed volume growth and 2% improvement in average effective tariff resulting from the CPI adjustment of 3.2% implemented at the beginning of the year. The contribution from the domestic operating subsidiaries amounting to Php957 million, higher by 30% year-on-year, also helped improve the growth in revenues.
A breakdown of the revenue drivers is shown below:
BREAKDOWN OF REVENUE DRIVERS
Water
Environmental charges
Sewer
Revenue from management contracts
Other operating income
Total operating revenues
2013
11,995,693
2,250,483
396,664
174,939
1,108,038
15,925,817
For the years ended December 31
(in thousand Pesos)
2012
11,491,724
2,236,951
390,635
169,450
264,308
14,553,068
Increase/
(Decrease)
503,969
13,532
6,029
5,489
843,730
1,372,749
%
4%
1%
2%
3%
319%
9%
The Group derived 75% of its operating revenues from water bills, while 17% came from environmental and sewer charges. Other revenues, which accounted for the balance of 8%, were from management contracts in Vietnam, connection fees and septic sludge disposal, among others. The Company realized income from reconciliation of service connection costs amounting to Php609 million, helping boost other operating income.
On the other hand, consolidated operating costs and expenses (excluding depreciation and amortization) rose by 10% to
Php4,654 million in 2013. Non-personnel costs led the growth with an increase of 19%. Overhead, in particular, rose by
56
MANILA WATER ANNUAL REPORT 2013

30% as higher management and professional fees were incurred during the period arising from the ongoing arbitration proceedings with MWSS. This will be discussed in more detail in the East Zone Concession section. Higher non-personnel costs were however tempered by lower salaries, wages and employee benefits which dropped by 8% as the Company continued to benefit from the manpower restructuring program initiated in 2012.
Below is a summary of the operating expenses incurred during the period:
SUMMARY OF OPERATING EXPENSES
Salaries, wages and employee benefits
Non personnel costs
Direct costs, materials and supplies
Overhead
Premises
Other expenses
Total operating expenses
2013
1,258,241
For the years ended December 31
(in thousand Pesos)
2012
1,373,488
3,152,824
1,302,190
2,639,405
1,196,637
1,676,804
173,831
242,544
1,285,965
156,803
215,953
4,653,609 4,228,846
Increase/
(Decrease)
(115,247)
513,419
105,553
390,839
17,028
26,591
424,763
%
-8%
19%
9%
30%
11%
12%
10%
Meanwhile, other income (net of expense) decreased by 5% to Php375 million from Php394 million in 2012. The two bulk water companies in Vietnam, Thu Duc Water and Kenh Dong Water, contributed Php294 million in net income, growing by 42% from the previous year.
The movements in revenues and operating expenses, together with other income that decreased by 5%, resulted in a consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) of Php11,647 million in 2013, growing by 9% from the previous year. EBITDA margin was maintained at the 73% level.
Results of operations detailed as to business segment are on the next page:
The Group is comprised of the Metro Manila East Zone Concession, its operating subsidiaries and management contracts secured outside of the service concession. The operating subsidiaries in the Philippines include Boracay Island Water
Company (“BIWC”), Clark Water Corporation (“CWC”) and Laguna AAAWater Corporation (“LWC”). The Group also has a leakage reduction contract and stakes in two bulk water suppliers in Ho Chi Minh City in Vietnam, namely Thu Duc Water
BOO Corporation (Thu Duc Water) and Kenh Dong Water Supply Joint Stock Company (Kenh Dong Water). Meanwhile, contribution from the new project in the Province of Cebu will be recognized upon construction completion of the transmission lines, which is expected in the second quarter of 2014.
57

Net income in 2013 was derived largely from the East Zone Concession, accounting for 88% of the total. Businesses outside the East Zone contributed the balance of 12% to consolidated net income.
SEGMENT REPORTING
Revenue
Operating expenses
Operating income
Revenue from rehabilitation works
Cost of rehabilitation works
Interest income
Interest expense
Share in equity income of associates
Others
Income before income tax
Provision for tax
Net income
Other comprehensive income
Unrealized gain (loss) on AFS Financial assets
Cumulative translation adjustment
Actuarial loss on pension liabilities-net
Total comprehensive income
Total comprehensive income attributable to:
Equity holders of MWCI
Noncontrolling interest
Segment assets, exclusive of deferred assets
Investments in associates
Deferred tax assets
Segment liabilities, exclusive of deferred liabilities
Deferred tax liabilities
Segment additions to equipment and SCA
Depreciation and amortization
Noncash expenses other than depreciation and amortization
(18,568)
-
(66,233)
5,017,709
5,017,709
-
5,017,709
60,651,146
-
781,409
61,432,555
38,388,811
-
38,388,811
4,856,870
2,298,103
32,677
East Zone
14,794,066
6,421,361
8,372,705
4,177,636
(4,177,636)
152,614
(1,671,312)
-
6,039
6,860,046
1,757,536
5,102,510
For the years ended December 31
(in thousand Pesos)
Operating
Subsidiaries
956,812
630,798
326,014
893,622
(893,622)
20,211
(62,088)
293,975
75,250
653,362
54,037
599,325
Management
Contracts Consolidated
174,939
96,213
15,925,817
7,148,372
78,726
-
8,777,445
5,071,258
78,726
-
78,726
-
-
-
-
-
(5,071,258)
172,825
(1,733,400)
293,975
81,289
7,592,134
1,811,573
5,780,561
-
127,109
(1,462)
724,972
696,870
28,102
724,972
6,479,136
4,708,207
40,331
11,227,674
3,390,062
-
3,390,062
1,388,686
196,660
22,968
-
78,726
-
-
78,726
-
78,726
197,296
-
-
197,296
24,595
-
24,595
-
-
-
(18,568)
127,109
(67,695)
5,821,407
5,793,305
28,102
5,821,407
67,327,578
4,708,207
821,740
72,857,525
41,803,468
-
41,803,468
6,245,556
2,494,763
55,645
EAST ZONE
Operating Highlights
Billed volume (in million cubic meters)
Domestic
Semi-Commercial
Commercial
Industrial
Number of water connections
Non-revenue water
Financial Highlights (in thousand Pesos )
Revenues
Operating expenses
EBITDA
Net income
58
MANILA WATER ANNUAL REPORT 2013
For the years ended December 31
2013 2012
Increase/
(Decrease) %
433.6
283.6
427.3
278.2
45.3
89.0
15.7
43.0
92.4
13.8
921,898 896,148
11.2% 12.2%
14,794,066 13,648,127
4,123,258 3,841,492
10,670,808 9,806,635
5,102,510 5,130,555
6.4
1%
5.4 2%
2.3 5%
-3.3 -4%
1.9 14%
25,750 3%
-1.0%
1,145,939
281,766
864,173
(28,045)
8%
7%
9%
-1%

East Zone’s billed volume, reported in millions of cubic meters (“mcm”), increased by nearly 1.5% in 2013. The number of water connections grew by 3% to 921,898 customers at the end of the period, mostly from the expansion areas of Rizal, Marikina and Taguig. However, since the new connections were mostly residential customers with relatively lower water usage, average consumption dropped by 2% to 43.1 cubic meters from
44.2 cubic meters in the previous year. The impact on tariff of the slight change in customer mix biased towards residential customers was muted by the CPI adjustment of
3.2% implemented at the beginning of the year resulting in a 2% improvement in average effective tariff.
Aside from the continued growth in residential customers, billed volume growth was also driven by the improvement in semi-commercial accounts by 5% with the completion of new buildings and the conversion of deep well users in the areas of Pasig and Taguig, as well as the 14% growth of industrial customers. This was however tempered by the
4% decline in commercial accounts.
The level of system losses, as measured by the nonrevenue water (“NRW”) ratio, improved to 11.2% at the end of 2013 from 12.2% at the end of 2012. The NRW of
East Zone improved as a result of the stabilization of the
Company’s operational adjustment in the water flows from the primary transmission lines going to the expansion areas of Marikina, Pasig, Rizal and some parts of Taguig to service the demand of the existing and new customers.
Collection efficiency in 2013 was recorded at 101%, a significant improvement from the previous year’s 97%.
However, average account receivable days rose to 20 days in 2013 from 17 days in 2012 as a result of the longer reading and billing days following the implementation in
August 2012 of a new meter reading and billing system.
On 12 September 2013, MWSS released a new set of tariffs for the East Zone as part of the rate rebasing review of Manila Water’s investment plan for the continuing provision of quality water supply and used water services to its customers. MWSS determined a negative adjustment of 29.47% in Manila Water’s 2012 average basic water charge, eliminating what the Company believes to be significant programs for building and maintaining the water and used water systems in the East Zone.
Manila Water, on 24 September 2013, raised its objection by filing a Dispute Notice with the International Chamber of Commerce, formally commencing the arbitration process which is a dispute resolution mechanism outlined under the Concession Agreement. While awaiting the outcome of the arbitration proceedings, existing tariffs as previously approved by the MWSS will be maintained in the East Zone at present levels.
BIWC For the years ended December 31
2013 2012
Increase/
(Decrease) %
Operating Highlights
Billed volume
(in million cubic meters) 3.6
3.1
0.5
15%
Number of water connections 5,647 5,288 359 7%
Non-revenue water
Financial Highlights
(in thousand Pesos)
Revenues
Operating expenses
EBITDA
13% 14%
266,790 223,480
111,320 108,400
155,470 115,080
-1%
43,310 19%
2,920 3%
40,390 35%
Net income 72,770 32,820 39,950 122%
BIWC posted a 15% increase in billed volume in 2013 to
3.6 mcm from 3.1 mcm in the previous year on the back of a 7% increase in water service connections and 13% growth in tourist arrivals that reached 1.4 million. With the continued improvement in network operations, the
NRW level improved by one percentage point to 13% in
2013 from 14% in the previous year.
The growth in billed volume coupled with higher average tariff led to a 19% improvement in total revenues to
Php267 million. BIWC implemented its approved rate rebasing tariff adjustment in February 2013 resulting in an increase in average tariff of 6%. Operating expenses increased at a slower rate of 3% to Php111 million, corresponding to the higher water production and used water expansion, thereby improving its EBITDA margin to 58% from 51% last year. Net income grew by 122% to
Php73 million as higher depreciation and amortization charges were offset by lower interest expense and deferred tax provision.
CWC For the years ended December 31
2013 2012
Increase/
(Decrease) %
Operating Highlights
Billed volume
(in million cubic meters)
Number of water connections
9.8
1,975
9.0
1,913
0.8
9%
62 3%
6% 12% -6% Non-revenue water
Financial Highlights
(in thousand Pesos)
Revenues
Operating expenses
EBITDA
Net income
335,612 318,567
167,483 149,213
168,129 169,354
85,627 85,935
17,045 5%
18,270 12%
(1,225) -1%
(308) 0%
59

CWC posted a billed volume growth of 9% to 9.8 mcm as it continued to connect new customers in its concession area. Efforts to reduce non-revenue water resulted in significant results as the NRW level as of the end of 2013 has declined to 6% from 12% in 2012. Proper management of water levels and monitoring of water pumping schedules led to the NRW improvement.
The increase in billed volume led to a revenue growth of 5% from Php319 million in 2012 to Php336 million in
2013. Meanwhile, operating expenses increased by 12% to Php167 million, thereby resulting in a slight decline in
EBITDA to Php168 million. Net income of CWC reached
Php86 million in 2013, moving sideways, as the higher depreciation was offset by lower interest expense during the year.
LWC For the years ended December 31
2013 2012
Increase/
(Decrease) %
Operating Highlights
Billed volume
(in million cubic meters)
Number of water connections
11.4
8.1
65,665 42,343
3.3
41%
23,322 55%
18% 25% -7% Non-revenue water
Financial Highlights
(in thousand Pesos)
Revenues
Operating expenses
EBITDA
Net income
332,308 189,554
132,174 89,300
200,134 100,254
107,539 56,478
142,754 75%
42,874 48%
99,880 100%
51,061 90%
Billed volume of LWC grew by 41% to 11.4 mcm largely due to the additional service connections totalling more than 23,000. LWC converted a number of residential subdivisions and commercial accounts during the year.
The NRW ratio improved by seven percentage points to end 2013 at 18% from 25% the previous year with the completion of the pipe replacement projects in Cabuyao and leak repair activities in the old Matang Tubig Spring transmission lines in late 2012.
Revenues grew by 75% in 2013 to Php332 million as a result of the higher billed volume and average effective tariff that went up by 8% to Php21.07 per cubic meter with the improved share of commercial customers in the mix. On the other hand, operating expenses grew at a slower rate of 48%, resulting in an EBITDA growth of 100% to Php200 million. Net income of LWC reached Php108 million in 2013, growing by 90% from the previous year.
On January 2, 2014, LWC signed an Asset Purchase
Agreement with Laguna Technopark, Inc. for the acquisition of the water reticulation and sewerage system of Laguna Technopark which is an industrial estate located within the cities of Sta. Rosa and Biñan in Laguna.
LWC officially took over at the beginning of 2014 as the exclusive water provider in the said industrial estate that is home to some of the region’s largest and more successful light to medium non-polluting industries.
TDW For the years ended December 31
2013 2012
Increase/
(Decrease) %
Operating Highlights
Billed volume
(in million cubic meters)
Financial Highlights
(in million VND)
Revenues
120.4
122.4
360,167 312,568
-2.0
-2%
47,599 15%
Operating expenses
EBITDA
Net income in PFRS
(in thousand Pesos)
Net income
(49% contribution)
99,358 90,674
260,809 221,894
240,507 94,352
216,301
8,684 10%
38,915 18%
146,155 155%
TDW sold a total of 120.4 mcm in 2013, dropping by 2% from the 122.4 mcm billed volume the previous year, due to the lower water intake of Saigon Water Corporation
(SAWACO). The billed volume is however still higher than the guaranteed minimum consumption of 300 million liters per day (mld) under the bulk water supply take-orpay arrangement with SAWACO.
Using Vietnamese Accounting Standards (VAS), revenues grew by 15% to VND360 billion despite the slight decline of 2% in billed volume as SAWACO drew less water from
TDW during the year. Meanwhile, operating expenses went up by 10%, attributable to the increase in General and Administrative Expenses. This led to a growth of
18% in EBITDA and 155% improvement in net income to
VND241 billion as the Company booked lower interest expenses owing to the continued paydown of its debt, and recognized deferred tax assets. In peso terms, the
PFRS-translated income reflected in the consolidated financial statements as Equity Share in Net Income of
Associates amounted to Php216 million, equivalent to
Manila Water’s 49% stake in TDW.
60
MANILA WATER ANNUAL REPORT 2013

KDW For the years ended December 31
2013 2012
Increase/
(Decrease) %
Operating Highlights
Billed volume
(in million cubic meters) 20.6
-
Financial Highlights
(in million VND)
Revenues
Operating expenses
EBITDA
Net income in PFRS
(in thousand Pesos)
Net income (47% contribution)
200,383
58,162
142,221
79,929
76,653
-
-
-
-
-
KDW started commercial operations in July 2013, registering a billed volume of 20.6 mcm in the six- month period ending December. The billed volume started lower than the guaranteed minimum consumption of 150 million liters per day (mld) under the bulk water supply take-orpay arrangement with SAWACO but improved to 150 mld in December 2013.
Using Vietnamese Accounting Standards (VAS), KDW posted revenues of VND200 billion and an EBITDA of
VND142 billion. Together with depreciation and interest expenses of VND62 billion, this led to a net income of
VND80 billion. Similar to TDW, income from KDW is translated into PFRS and is reported as Equity in Net
Earnings of Associates in the consolidated financial statements. In peso terms, the PFRS-translated income amounted to Php77 million, equivalent to Manila Water’s
47% stake in KDW.
The Company’s East Zone spent a total of Php4,682 million (inclusive of concession fee payments) for capital expenditures in 2013, 35% less than the Php7,215 million spent the previous year. The bulk of capital expenditures was spent on network reliability, water supply and used water expansion projects, which accounted for 76% of the total. The balance of 24% was accounted for by concession fees paid to MWSS. Capital expenditures in 2013 were limited to on-going and service reliability projects in the absence of an approved business plan as part of the 2013
Rate Rebasing exercise. The determination of the new capital expenditure program has yet to be concluded via arbitration.
Meanwhile, total capital expenditures of the subsidiaries amounted to Php954 million, growing by 101% from 2012.
Of the total amount, 79% was used by Laguna Water for its network coverage expansion, while the balance was disbursed by Boracay Island Water and Clark Water.
The consolidated balance sheet remained strong and prepared for expansion at the end of 2013. Strong cash inflows brought about by the higher collection efficiency during the period and additional debt brought cash and cash equivalents to Php6.8 billion. Total assets rose by
9% to Php72.9 billion as the Company continued to lay additional capital investments on network, water and used water expansion projects. Liabilities, on the other hand, rose by 4% to Php41.8 billion due to new loan availments.
The Company continued to be compliant with the loan covenants, as the debt to equity ratio stood at 1.09x, excluding concession obligations. Meanwhile, net bank debt to equity registered at 0.64x.
61

The Audit and Governance Committee’s roles, responsibilities and authority are defined in the Audit and Governance
Committee Charter approved by the Board of Directors. The
Committee provides assistance to the Board of Directors in fulfilling their oversight responsibility to the shareholders relating to the: a) integrity of the Manila Water Company, Inc.’s
(“Company’s") financial statements and the financial reporting process; b) appointment, remuneration, independence and performance of internal audit and of the independent auditors, and integrity of the audit process; c) effectiveness of the systems of internal controls and enterprise risk management process; d) compliance with applicable legal and regulatory requirements and other reporting standards; e) performance and leadership of the internal control function; f) preparation of a year-end report of the Committee for approval of the Board and to be included in the annual report.
In compliance with the Audit and Governance Committee
Charter, the Committee confirms that:
• An independent director chairs the Audit and Governance
Committee. The Committee has three out of four members who are independent directors;
• We had six meetings during the year with the following attendance rate:
• We discussed and approved the overall scope and the respective audit plans of the Company’s internal auditors and of SGV & Co. We also discussed the results of their audits and their assessment of the Company’s internal controls and the overall quality of the financial reporting process.
• We discussed the reports of the internal auditors, and ensured that Management is taking appropriate actions in a timely manner, including addressing internal control and compliance issues. All the activities performed by
Internal Audit were conducted in conformance with the
International Standards for the Professional Practice of
Internal Auditing.
• We discussed with Management the adequacy and effectiveness of the Enterprise Risk Management process including significant risk exposures, the related riskmitigation efforts and initiatives, and the status of the mitigation plans. The review was undertaken in the context that Management is primarily responsible for the risk management process.
• We reviewed and confirmed that the existing Audit and
Governance and Internal Audit Charters are sufficient to accomplish AG&C’s and IAA’s objectives. AG&C Charter is in compliance with the Securities and Exchange Commission
Memo Circular No. 04 (2012).
• We conducted a self-assessment of the Committee’s performance to confirm that the Committee continues to meet the expectations of the Board, Management and shareholders.
DIRECTOR No. of Meetings
Attended/Held
%
Present
Oscar S. Reyes
Jose L. Cuisia, Jr.
Delfin C. Gonzalez, Jr.
Sherisa P. Nuesa
Ricardo Nicanor N. Jacinto
6/6
6/6
1/1
5/5
6/6
100%
100%
100%
100%
100%
Based on the reviews and discussions undertaken, and subject to the limitations on our roles and responsibilities referred to above, the Audit and Governance Committee recommended to the Board of Directors the inclusion of the Company’s audited consolidated financial statements in the Company’s Annual
Report to the Stockholders for the year ended December
31, 2013 and for filing with the Securities and Exchange
Commission.
• We reviewed and approved the quarterly unaudited consolidated financial statements and the annual Audited
Consolidated Financial Statements of Manila Water
Company, Inc. and subsidiaries, including Management’s
Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31,
2013, with the Company’s Management, internal auditors, and SGV & Co. These activities were conducted in the following context:
- That, Management has the primary responsibility for the financial statements and the reporting process
- That, SGV & Co. is responsible for expressing an opinion on the conformity of the Company’s audited consolidated financial statements with the Philippine
Financial Reporting Standards.
• We reviewed and approved the Management representation letter before submission to the Company’s independent external auditors.
• We recommended to the Board of Directors the reappointment of SGV & Co. as independent external auditors for 2014 based on the Committee’s review of SGV’s performance and qualifications including consideration of Management’s recommendation.
• We reviewed and approved all audit and audit-related services provided by SGV & Co. to the Company and the related fees for such services.
February 12, 2014
OSCAR S. REYES
Chairman, Audit & Governance Committee
JOSE L. CUISIA, JR.
Independent Director
SHERISA P. NUESA
Independent Director
RICARDO NICANOR N. JACINTO
Member
62
MANILA WATER ANNUAL REPORT 2013

The management of Manila Water Company, Inc. and its subsidiaries is responsible for the preparation and fair presentation of the consolidated financial statements for the years ended December 31, 2013 and 2012, including the additional components attached therein, in accordance with Philippine Financial Reporting Standards. This responsibility includes designing and implementing internal controls relevant to the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.
The Board of Directors reviews and approves the consolidated financial statements and submits the same to the stockholders.
SyCip Gorres Velayo & Co., the independent auditors appointed by the stockholders, has examined the consolidated financial statements of the Company in accordance with Philippine Standards on Auditing, and in its report to the stockholders, has expressed its opinion on the fairness of presentation upon completion of such examination.
FERNANDO ZOBEL DE AYALA
Chairman of the Board
GERARDO C. ABLAZA, JR.
President and CEO
LUIS JUAN B. ORETA
Chief Finance Officer
63

SyCip Gorres Velayo & Co.
6760 Ayala Avenue
1226 Makati City
Philippines
Tel: (632) 891 0307
Fax: (632) 819 0872 ey.com/ph
BOA/PRC Reg. No. 0001,
December 28, 2012, valid until December 31, 2015
SEC Accreditation No. 0012-FR-3 (Group A),
November 15, 2012, valid until November 16, 2015
INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of Directors
Manila Water Company, Inc.
We have audited the accompanying consolidated financial statements of Manila Water Company, Inc. and its subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2013 and 2012, and the consolidated statements of comprehensive income, consolidated statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2013, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Philippine Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
- 2 -
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Manila Water Company, Inc. and its subsidiaries as at December 31, 2013 and 2012, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2013 in accordance with Philippine
Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Bernalette L. Ramos
Partner
CPA Certificate No. 0091096
SEC Accreditation No. 0926-A (Group A),
April 15, 2013, valid until April 14, 2016
Tax Identification No. 178-486-666
BIR Accreditation No. 08-001998-81-2012,
June 19, 2012, valid until June 18, 2015
PTR No. 4225205, January 2, 2014, Makati City
February 20, 2014
A member firm of Ernst & Young Global Limited A member firm of Ernst & Young Global Limited
64
MANILA WATER ANNUAL REPORT 2013

- 2 -
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Manila Water Company, Inc. and its subsidiaries as at December 31, 2013 and 2012, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2013 in accordance with Philippine
Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Bernalette L. Ramos
Partner
CPA Certificate No. 0091096
SEC Accreditation No. 0926-A (Group A),
April 15, 2013, valid until April 14, 2016
Tax Identification No. 178-486-666
BIR Accreditation No. 08-001998-81-2012,
June 19, 2012, valid until June 18, 2015
PTR No. 4225205, January 2, 2014, Makati City
February 20, 2014
A member firm of Ernst & Young Global Limited
65

MANILA WATER COMPANY, INC. AND SUBSIDIARIES
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
For the Years Ended December 31
2013
2012
(As restated
Notes 2 and 17)
January 1,
2012
(As restated
Notes 2 and 17)
ASSETS
Current Assets
Cash and cash equivalents (Notes 4, 5 and 29)
Short-term cash investments (Notes 5 and 29)
Receivables - net (Notes 6, 23 and 29)
Concession financial receivable - current portion (Note 10)
Materials and supplies - at cost (Note 7)
Other current assets - net (Note 8)
Total Current Assets
Noncurrent Assets
Property and equipment - net (Note 9)
Service concession assets - net (Notes 4 and 10)
Available-for-sale financial assets (Notes 11, 23, 28 and 29)
Deferred tax assets - net (Note 20)
Investments in associates (Note 13)
Goodwill (Note 3)
Concession financial receivable - net of current portion
(Note 10)
Other noncurrent assets (Notes 14 and 29)
Total Noncurrent Assets
94,344,600
1,393,550,067
77,458,500
103,597,262
620,673,091
9,069,404,365
2,038,760,917
54,582,229,395
105,710,006
821,740,345
4,708,206,865
130,319,465
603,905,224
797,248,227
63,788,120,444
–
1,451,972,427
–
111,301,680
1,114,071,729
8,217,496,920
2,317,748,089
50,753,856,335
494,321,556
830,163,100
3,644,853,132
130,319,465
–
738,270,581
58,909,532,258
657,999,988
973,313,589
–
115,280,254
837,613,128
7,819,348,460
2,092,056,053
45,695,757,897
1,312,168,987
760,109,469
1,788,001,591
130,319,465
–
1,299,380,262
53,077,793,724
LIABILITIES AND EQUITY
Current Liabilities
Accounts and other payables (Notes 15 and 29)
Current portion of:
Long-term debt (Notes 16, 28 and 29)
Service concession obligation (Notes 10, 28 and 29)
Income tax payable (Note 20)
Payables to related parties (Notes 23 and 29)
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current portion (Notes 16, 28 and 29)
Service concession obligation - net of current portion
(Notes 10, 28 and 29)
Pension liabilities (Note 17)
Deferred tax liability - net (Note 20)
Provisions for probable losses (Note 31)
Other noncurrent liabilities (Notes 18 and 28)
Total Noncurrent Liabilities
Total Liabilities
(Forward)
1,890,774,750
1,290,405,792
529,962,936
139,018,853
8,072,931,098
24,360,904,354
7,143,299,801
381,600,900
–
861,360,246
983,371,655
33,730,536,956
41,803,468,054
4,264,858,738
840,562,875
467,023,040
27,559,656
9,899,093,753
19,806,147,351
7,508,330,556
382,024,300
158,086
745,711,252
2,031,294,650
30,473,666,195
40,372,759,948
1,225,787,741
980,620,157
191,371,881
101,744,555
6,288,023,096
22,041,738,633
7,053,363,466
423,404,000
213,245
739,626,432
1,638,381,618
31,896,727,394
38,184,750,490
66
MANILA WATER ANNUAL REPORT 2013

MANILA WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
For the Years Ended December 31
2013
2012
(As restated
Notes 2 and 17)
January 1,
2012
(As restated
Notes 2 and 17)
ASSETS
Current Assets
Cash and cash equivalents (Notes 4, 5 and 29)
Short-term cash investments (Notes 5 and 29)
Receivables - net (Notes 6, 23 and 29)
Concession financial receivable - current portion (Note 10)
Materials and supplies - at cost (Note 7)
Other current assets - net (Note 8)
Total Current Assets
Noncurrent Assets
Property and equipment - net (Note 9)
Service concession assets - net (Notes 4 and 10)
Available-for-sale financial assets (Notes 11, 23, 28 and 29)
Deferred tax assets - net (Note 20)
Investments in associates (Note 13)
Goodwill (Note 3)
Concession financial receivable - net of current portion
(Note 10)
Other noncurrent assets (Notes 14 and 29)
Total Noncurrent Assets
94,344,600
1,393,550,067
77,458,500
103,597,262
620,673,091
9,069,404,365
2,038,760,917
54,582,229,395
105,710,006
821,740,345
4,708,206,865
130,319,465
603,905,224
797,248,227
63,788,120,444
–
1,451,972,427
–
111,301,680
1,114,071,729
8,217,496,920
2,317,748,089
50,753,856,335
494,321,556
830,163,100
3,644,853,132
130,319,465
–
738,270,581
58,909,532,258
657,999,988
973,313,589
–
115,280,254
837,613,128
7,819,348,460
2,092,056,053
45,695,757,897
1,312,168,987
760,109,469
1,788,001,591
130,319,465
–
1,299,380,262
53,077,793,724
LIABILITIES AND EQUITY
Current Liabilities
Accounts and other payables (Notes 15 and 29)
Current portion of:
Long-term debt (Notes 16, 28 and 29)
Service concession obligation (Notes 10, 28 and 29)
Income tax payable (Note 20)
Payables to related parties (Notes 23 and 29)
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current portion (Notes 16, 28 and 29)
Service concession obligation - net of current portion
(Notes 10, 28 and 29)
Pension liabilities (Note 17)
Deferred tax liability - net (Note 20)
Provisions for probable losses (Note 31)
Other noncurrent liabilities (Notes 18 and 28)
Total Noncurrent Liabilities
Total Liabilities
(Forward)
1,890,774,750
1,290,405,792
529,962,936
139,018,853
8,072,931,098
24,360,904,354
7,143,299,801
381,600,900
–
861,360,246
983,371,655
33,730,536,956
41,803,468,054
4,264,858,738
840,562,875
467,023,040
27,559,656
9,899,093,753
19,806,147,351
7,508,330,556
382,024,300
158,086
745,711,252
2,031,294,650
30,473,666,195
40,372,759,948
1,225,787,741
980,620,157
191,371,881
101,744,555
6,288,023,096
22,041,738,633
7,053,363,466
423,404,000
213,245
739,626,432
1,638,381,618
31,896,727,394
38,184,750,490
- 2 -
For the Years Ended December 31
2013
2012
(As restated
Notes 2 and 17)
January 1
2012
(As restated
Notes 2 and 17)
Equity
Attributable to equity holders of Manila Water Company, Inc.
Capital stock (Note 21)
Common stock
Preferred stock
Additional paid-in capital
Subscriptions receivable
Total paid-up capital
Common stock options outstanding (Note 21)
Retained earnings
Appropriated for capital expenditures (Note 21)
Unappropriated
Unrealized gain on available-for-sale financial assets
(Notes 11 and 29)
Remeasurement gain (loss) on defined benefit plans
(Note 17)
Other equity reserve (Notes 1 and 21)
Cumulative translation adjustment (Note 2)
Treasury shares - at cost (Notes 1 and 21)
Non-controlling interests (Note 1)
Total Equity
See accompanying Notes to Consolidated Financial Statements.
400,000,000
2,447,270,452
3,908,364,990
(283,527,324)
6,072,108,118
13,806,787
7,000,000,000
17,402,675,096
24,402,675,096
3,300,716
(140,372,917)
7,500,000
118,239,494
30,477,257,294
–
30,477,257,294
576,799,461
31,054,056,755
400,000,000
2,441,453,232
3,750,425,522
(221,425,456)
5,970,453,298
13,578,433
7,000,000,000
13,555,773,394
20,555,773,394
21,868,661
(72,774,681)
7,500,000
(8,869,509)
26,487,529,596
–
26,487,529,596
266,739,634
26,754,269,230
900,000,000
2,937,140,818
3,601,805,187
(139,045,131)
6,399,900,874
20,830,032
7,000,000,000
9,558,014,858
16,558,014,858
46,340,187
23,588,702
–
(10,734,940)
23,037,939,713
(500,000,000)
22,537,939,713
174,451,981
22,712,391,694
67

MANILA WATER COMPANY, INC. AND SUBSIDIARIES
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2013
Years Ended December 31
2012
(As restated
Notes 2 and 17)
2011
(As restated
Notes 2 and 17)
REVENUE
Water (Note 23)
East Zone
Outside East Zone
Environmental charges (Note 23)
Sewer (Note 23)
East Zone
Outside East Zone
Revenue from management contracts (Note 24)
Other operating income (Note 19)
P P P
673,289,068
2,250,482,542
590,241,076
2,236,950,897
247,813,952
1,682,838,504
265,462,739
131,201,229
174,938,833
1,108,039,013
264,938,493
125,696,513
169,449,785
264,308,289
276,642,344
41,945,520
168,719,755
134,185,418
15,925,817,462 14,553,068,347 12,003,912,704
COST OF SERVICES
Depreciation and amortization (Notes 9 and 10)
Salaries, wages and employee benefits (Notes 17, 21 and 23)
Power, light and water
Management, technical and professional fees (Note 23)
Repairs and maintenance
Contractual services
Collection fees
Occupancy costs (Note 26)
Wastewater costs
Water treatment chemicals
Regulatory costs (Note 1)
Insurance
Transportation and travel
Postage, telephone and supplies
Taxes and licenses
Other expenses
2,384,936,194
960,101,617
814,227,751
412,606,429
358,204,520
215,824,474
114,102,430
98,618,208
84,042,255
79,103,032
65,882,799
49,702,630
40,531,449
23,020,977
22,505,452
149,422,277
5,872,832,494
10,052,984,968
1,275,539,592
8,777,445,376
2,139,883,760 1,800,278,837
1,106,810,417 899,855,092
765,611,866
259,885,308
243,865,112
694,118,140
221,629,391
183,434,564
143,528,460
110,973,894
73,029,541
66,318,906
93,864,521
120,549,454
68,673,180
78,621,282
141,157,469
50,411,509
45,215,416
37,676,982
14,141,421
8,879,767
49,036,332
92,137,053
29,216,093
31,899,271
61,734,723
11,253,262
4,423,469
98,876,754
5,256,426,160 4,490,565,086
9,296,642,187 7,513,347,618
1,292,494,676 970,067,184
8,004,147,511 6,543,280,434
GROSS PROFIT
OPERATING EXPENSES ( Note 19)
INCOME BEFORE OTHER INCOME (EXPENSES)
OTHER INCOME (EXPENSES)
Revenue from rehabilitation works (Notes 1, 2 and 10)
Cost of rehabilitation works (Notes 1, 2 and 10)
Foreign currency differentials (Note 1)
Foreign exchange gains (losses)
Interest income (Note 19)
Amortization of deferred credits (Note 18)
Interest expense (Notes 16 and 19)
Mark-to-market loss on derivatives (Note 28)
Realized loss on pre-termination of bonds (Note 16)
Equity share in net income (loss) of associates and joint venture
(Notes 12 and 13)
Gain on disposal of property and equipment
Gain on disposal of available-for-sale financial assets (Note 11)
Gain (loss) on revaluation of receivable from Bonifacio Water
Corporation (Notes 6 and 14)
Other income (Note 13)
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX (Note 20)
NET INCOME
(Forward)
5,071,257,510 5,877,838,288 7,195,935,517
(5,071,257,510) (5,877,838,288) (7,195,935,517)
545,916,143 (1,014,755,476)
(539,490,917) 1,034,389,895
339,166,122
(369,898,789)
172,825,432 264,518,215 563,588,437
6,167,676 5,100,313 4,274,324
(1,733,400,506) (1,563,957,454) (1,652,552,302)
–
–
–
–
(229,613,149)
(6,146,038)
293,975,032
13,448
–
206,762,409
4,352,290
13,112,046
(7,860,283)
69,687
12,007,215
(1,411,856)
70,093,853
(1,185,311,695)
7,592,133,681
1,811,572,574
5,780,561,107
113,488,599
31,186,549
–
43,229,297
(905,802,614) (1,303,735,479)
7,098,344,897 5,239,544,955
1,595,053,389 957,384,587
5,503,291,508 4,282,160,368
68
MANILA WATER ANNUAL REPORT 2013

MANILA WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2013
Years Ended December 31
2012
(As restated
Notes 2 and 17)
2011
(As restated
Notes 2 and 17)
REVENUE
Water (Note 23)
East Zone
Outside East Zone
Environmental charges (Note 23)
Sewer (Note 23)
East Zone
Outside East Zone
Revenue from management contracts (Note 24)
Other operating income (Note 19)
P P P
673,289,068
2,250,482,542
590,241,076
2,236,950,897
247,813,952
1,682,838,504
265,462,739
131,201,229
174,938,833
1,108,039,013
264,938,493
125,696,513
169,449,785
264,308,289
276,642,344
41,945,520
168,719,755
134,185,418
15,925,817,462 14,553,068,347 12,003,912,704
COST OF SERVICES
Depreciation and amortization (Notes 9 and 10)
Salaries, wages and employee benefits (Notes 17, 21 and 23)
Power, light and water
Management, technical and professional fees (Note 23)
Repairs and maintenance
Contractual services
Collection fees
Occupancy costs (Note 26)
Wastewater costs
Water treatment chemicals
Regulatory costs (Note 1)
Insurance
Transportation and travel
Postage, telephone and supplies
Taxes and licenses
Other expenses
2,384,936,194
960,101,617
814,227,751
412,606,429
358,204,520
215,824,474
114,102,430
98,618,208
84,042,255
79,103,032
65,882,799
49,702,630
40,531,449
23,020,977
22,505,452
149,422,277
5,872,832,494
10,052,984,968
1,275,539,592
8,777,445,376
2,139,883,760 1,800,278,837
1,106,810,417 899,855,092
765,611,866
259,885,308
243,865,112
694,118,140
221,629,391
183,434,564
143,528,460
110,973,894
73,029,541
66,318,906
93,864,521
120,549,454
68,673,180
78,621,282
141,157,469
50,411,509
45,215,416
37,676,982
14,141,421
8,879,767
49,036,332
92,137,053
29,216,093
31,899,271
61,734,723
11,253,262
4,423,469
98,876,754
5,256,426,160 4,490,565,086
9,296,642,187 7,513,347,618
1,292,494,676 970,067,184
8,004,147,511 6,543,280,434
GROSS PROFIT
OPERATING EXPENSES ( Note 19)
INCOME BEFORE OTHER INCOME (EXPENSES)
OTHER INCOME (EXPENSES)
Revenue from rehabilitation works (Notes 1, 2 and 10)
Cost of rehabilitation works (Notes 1, 2 and 10)
Foreign currency differentials (Note 1)
Foreign exchange gains (losses)
Interest income (Note 19)
Amortization of deferred credits (Note 18)
Interest expense (Notes 16 and 19)
Mark-to-market loss on derivatives (Note 28)
Realized loss on pre-termination of bonds (Note 16)
Equity share in net income (loss) of associates and joint venture
(Notes 12 and 13)
Gain on disposal of property and equipment
Gain on disposal of available-for-sale financial assets (Note 11)
Gain (loss) on revaluation of receivable from Bonifacio Water
Corporation (Notes 6 and 14)
Other income (Note 13)
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX (Note 20)
NET INCOME
(Forward)
5,071,257,510 5,877,838,288 7,195,935,517
(5,071,257,510) (5,877,838,288) (7,195,935,517)
545,916,143 (1,014,755,476)
(539,490,917) 1,034,389,895
339,166,122
(369,898,789)
172,825,432 264,518,215 563,588,437
6,167,676 5,100,313 4,274,324
(1,733,400,506) (1,563,957,454) (1,652,552,302)
–
–
–
–
(229,613,149)
(6,146,038)
293,975,032
13,448
–
206,762,409
4,352,290
13,112,046
(7,860,283)
69,687
12,007,215
(1,411,856)
70,093,853
(1,185,311,695)
7,592,133,681
1,811,572,574
5,780,561,107
113,488,599
31,186,549
–
43,229,297
(905,802,614) (1,303,735,479)
7,098,344,897 5,239,544,955
1,595,053,389 957,384,587
5,503,291,508 4,282,160,368
- 2 -
2013
Years Ended December 31
2012
(As restated
Notes 2 and 17)
2011
(As restated
Notes 2 and 17)
OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) to be reclassified to profit and loss in subsequent periods:
Unrealized fair value loss on available-for-sale financial assets
Realized fair value gain on available-for-sale transferred to profit or loss
Cumulative translation adjustment (Note 13)
(15,065,800)
127,109,003
108,541,058
(17,934,347)
1,865,431
(22,606,095)
(98,326,225)
(13,385,252)
(111,974,887)
Other comprehensive income (loss) not to be reclassified to profit or loss in subsequent periods:
Actuarial gain (loss) on pension liabilities (Note 17)
Income tax effect (Note 20)
(68,194,900)
499,830
(67,695,070)
(96,530,204)
98,130
(96,432,074)
22,979,410
358,407
23,337,817
P P P TOTAL COMPREHENSIVE INCOME
Net Income Attributable to:
Equity holders of Manila Water Company, Inc.
Non-controlling interests (Note 1)
P
28,199,161
P
12,848,844
P
11,954,890
P P P
Total Comprehensive Income Attributable to:
Equity holders of Manila Water Company, Inc.
Non-controlling interests (Note 1)
P
28,102,327
P
11,529,759
P
11,704,005
P P P
Earnings Per Share (Note 22)
Basic
Diluted
See accompanying Notes to Consolidated Financial Statements.
69

MANILA WATER COMPANY, INC. AND SUBSIDIARIES
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
2013
Years Ended December 31
2012
(As restated
Notes 2 and 17)
2011
(As restated
Notes 2 and 17)
ATTRIBUTABLE TO EQUITY HOLDERS OF MANILA WATER
COMPANY, INC.
CAPITAL STOCK (Note 21)
Authorized - 3,100,000,000 shares
Issued and outstanding - 2,015,301,474 in 2013 and
2,005,443,965 in 2012 and 2011
Subscribed common stock - 31,968,978 shares in 2013,
36,009,267 shares in 2012 and 31,696,853 shares in 2011
Balance at beginning of year
Additions during the year
Issuance of shares
Balance at end of year nonredeemable and nonconvertible
Authorized, issued and outstanding - 4,000,000,000 shares nonparticipating, nonconvertible, redeemable at the Company’s option
Authorized and issued - 500,000,000 shares in
December 31, 2011
P
36,009,267
5,817,220
(9,857,509)
31,968,978
400,000,000
P
31,696,853
4,312,414
–
36,009,267
400,000,000
P
27,153,853
4,543,000
–
31,696,853
400,000,000
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year
Additions during the year
Balance at end of year
SUBSCRIPTIONS RECEIVABLE
Balance at beginning of year
Additions during the year
Collections during the year
Balance at end of year
COMMON STOCK OPTIONS OUTSTANDING (Note 21)
Balance at beginning of year
Granted
Exercised
Balance at end of year
RETAINED EARNINGS (Note 21)
Appropriated for capital expenditures:
Balance at beginning and end of year
Unappropriated:
Balance at the beginning of the year, as previously stated
Effect of change on accounting for employee benefits, net of tax
(Notes 2 and 17)
Balance at beginning of year, as restated
Net income
Dividends declared (Note 21)
Balance at end of year
(Forward)
–
400,000,000
2,447,270,452
–
400,000,000
2,441,453,232
500,000,000
900,000,000
2,937,140,818
3,750,425,522
157,939,468
3,908,364,990
(221,425,456)
(113,151,413)
51,049,545
(283,527,324)
13,578,433
50,833,629
(50,605,275)
13,806,787
3,601,805,187
148,620,335
3,750,425,522
(139,045,131)
(113,816,191)
31,435,866
(221,425,456)
20,830,032
31,864,959
(39,116,558)
13,578,433
3,513,056,977
88,748,210
3,601,805,187
(127,073,513)
(61,646,048)
49,674,430
(139,045,131)
32,274,862
20,241,555
(31,686,385)
20,830,032
7,000,000,000 7,000,000,000 7,000,000,000
13,627,747,398 9,680,655,435 6,816,792,179
(71,974,004) (122,640,577) (126,599,973)
13,555,773,394
5,752,361,946
9,558,014,858
5,490,442,664
6,690,192,206
4,270,205,478
(1,905,460,244) (1,492,684,128) (1,402,382,826)
17,402,675,096 13,555,773,394 9,558,014,858
24,402,675,096 20,555,773,394 16,558,014,858
70
MANILA WATER ANNUAL REPORT 2013

MANILA WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
2013
Years Ended December 31
2012
(As restated
Notes 2 and 17)
2011
(As restated
Notes 2 and 17)
ATTRIBUTABLE TO EQUITY HOLDERS OF MANILA WATER
COMPANY, INC.
CAPITAL STOCK (Note 21)
Authorized - 3,100,000,000 shares
Issued and outstanding - 2,015,301,474 in 2013 and
2,005,443,965 in 2012 and 2011
Subscribed common stock - 31,968,978 shares in 2013,
36,009,267 shares in 2012 and 31,696,853 shares in 2011
Balance at beginning of year
Additions during the year
Issuance of shares
Balance at end of year nonredeemable and nonconvertible
Authorized, issued and outstanding - 4,000,000,000 shares nonparticipating, nonconvertible, redeemable at the Company’s option
Authorized and issued - 500,000,000 shares in
December 31, 2011
P
36,009,267
5,817,220
(9,857,509)
31,968,978
400,000,000
P
31,696,853
4,312,414
–
36,009,267
400,000,000
P
27,153,853
4,543,000
–
31,696,853
400,000,000
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year
Additions during the year
Balance at end of year
SUBSCRIPTIONS RECEIVABLE
Balance at beginning of year
Additions during the year
Collections during the year
Balance at end of year
COMMON STOCK OPTIONS OUTSTANDING (Note 21)
Balance at beginning of year
Granted
Exercised
Balance at end of year
RETAINED EARNINGS (Note 21)
Appropriated for capital expenditures:
Balance at beginning and end of year
Unappropriated:
Balance at the beginning of the year, as previously stated
Effect of change on accounting for employee benefits, net of tax
(Notes 2 and 17)
Balance at beginning of year, as restated
Net income
Dividends declared (Note 21)
Balance at end of year
(Forward)
–
400,000,000
2,447,270,452
–
400,000,000
2,441,453,232
500,000,000
900,000,000
2,937,140,818
3,750,425,522
157,939,468
3,908,364,990
(221,425,456)
(113,151,413)
51,049,545
(283,527,324)
13,578,433
50,833,629
(50,605,275)
13,806,787
3,601,805,187
148,620,335
3,750,425,522
(139,045,131)
(113,816,191)
31,435,866
(221,425,456)
20,830,032
31,864,959
(39,116,558)
13,578,433
3,513,056,977
88,748,210
3,601,805,187
(127,073,513)
(61,646,048)
49,674,430
(139,045,131)
32,274,862
20,241,555
(31,686,385)
20,830,032
7,000,000,000 7,000,000,000 7,000,000,000
13,627,747,398 9,680,655,435 6,816,792,179
(71,974,004) (122,640,577) (126,599,973)
13,555,773,394
5,752,361,946
9,558,014,858
5,490,442,664
6,690,192,206
4,270,205,478
(1,905,460,244) (1,492,684,128) (1,402,382,826)
17,402,675,096 13,555,773,394 9,558,014,858
24,402,675,096 20,555,773,394 16,558,014,858
- 2 -
2013
Years Ended December 31
2012
(As restated
Notes 2 and 17)
2011
(As restated
Notes 2 and 17)
UNREALIZED GAIN ON AVAILABLE-FOR-SALE FINANCIAL
ASSETS
Balance at beginning of year
Other comprehensive income:
Unrealized fair value loss on available-for-sale financial assets
Realized fair value gain on available-for-sale financial assets transferred to profit and loss
Balance at end of year
REMEASUREMENT GAIN (LOSS) ON DEFINED BENEFIT PLANS
(Note 17)
Balance at beginning of year
Actuarial gain (loss) on pension liabilities
Income tax effect
Balance at end of year
OTHER EQUITY RESERVE (Notes 1 and 21)
CUMULATIVE TRANSLATION ADJUSTMENT (Notes 2 and 13)
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
TREASURY SHARES - cost (Note 21)
Balance at beginning of the year
Retirement of shares
Balance at end of the year
NON-CONTROLLING INTERESTS (Notes 1 and 2)
Balance at beginning of year
Additions
Remeasurement loss on defined benefit plans
Net income
Balance at end of year
(3,502,145)
(15,065,800)
3,300,716
(72,774,681)
(68,094,610)
496,374
(140,372,917)
7,500,000
(6,537,179)
(17,934,347)
21,868,661
23,588,702
(96,432,074)
68,691
(72,774,681)
7,500,000
(263,410)
(98,326,225)
46,340,187
–
23,337,817
250,885
23,588,702
–
(8,869,509)
127,109,003
118,239,494
266,739,634
281,957,500
(96,834)
28,199,161
576,799,461
P P
(10,734,940)
1,865,431
(8,869,509)
174,451,981
79,507,499
(68,691)
12,848,845
266,739,634
2,650,312
(13,385,252)
(10,734,940)
–
–
(500,000,000)
500,000,000
(500,000,000)
–
– – (500,000,000)
30,477,257,294 26,487,529,596 22,537,939,713
162,747,976
–
(250,885)
11,954,890
174,451,981
See accompanying Notes to Consolidated Financial Statements.
71

MANILA WATER COMPANY, INC. AND SUBSIDIARIES
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2013
Years Ended December 31
2012
(As restated
Notes 2 and 17)
2011
(As restated
Notes 2 and 17)
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Notes 9 and 10)
Interest expense (Notes 16 and 19)
Provision for probable losses (Notes 6 and 31)
Share-based payments (Note 21)
Gain on disposal of AFS financial assets (Note 11)
Mark-to-market loss on derivatives (Note 28)
Loss on pre-termination of bonds (Note 16)
Equity share in net loss of joint venture (Note 12)
Gain on disposal of property and equipment
Loss (gain) on revaluation of receivable from Bonifacio Water
Corporation (Notes 6 and 14)
Equity share in net income of associate (Note 13)
Interest income (Note 19)
Operating income before changes in operating assets and liabilities
Changes in operating assets and liabilities
Decrease (increase) in:
Receivables
Materials and supplies
Service concession assets
Concession financial receivable
Other current assets
Increase (decrease) in:
Accounts and other payables
Pension liabilities
Payables to related parties
Net cash provided by operations
Income tax paid
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received
Acquisitions of:
Investments in associates (Notes 1 and 13)
Property and equipment (Note 9)
Available-for-sale financial assets (Note 11)
Subsidiary through business combination - net of cash acquired
Receivable from Bonifacio Water Corporation (Note 6)
Proceeds from:
Maturities of available-for-sale financial assets
Sale of shares of stock of a subsidiary (Notes 1 and 21)
Sale of property and equipment
Decrease (increase) in:
Short-term cash investments (Note 5)
Other noncurrent assets
Net cash provided by (used) in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt (Note 16):
Availments
Payments
Payments of service concession obligation (Note 10)
Payments of dividends (Note 21)
(Forward)
P P P
2,494,762,992
1,733,400,506
171,294,230
50,833,629
–
–
–
–
(13,448)
2,320,075,185
1,563,957,454
84,761,395
31,864,959
(13,112,046)
–
–
–
(4,352,290)
1,889,515,833
1,652,552,302
90,807,943
20,241,555
(12,007,215)
229,613,149
6,146,038
7,860,283
(69,687)
1,411,856
(293,975,032)
(113,488,599)
(206,762,409)
(172,825,432) (264,518,215)
11,577,022,982 10,496,770,331
–
–
(563,588,437)
8,560,616,719
40,374,240
7,704,418
6,195,926,714
(4,255,918,126)
(924,935,673)
(1,905,460,244)
(472,215,297)
45,489,899
(327,279,427)
(58,323,959)
(4,677,183,266) (5,710,773,652) (7,842,040,147)
(681,363,724)
391,470,005
(640,874,433)
(68,614,844)
111,459,197
6,059,994,575 4,548,704,330 1,858,091,145
(1,714,907,911) (1,384,792,142) (1,328,962,798)
4,345,086,664 3,163,912,188 529,128,347
133,816,460
–
(248,516,927)
589,092,433
(76,957,558)
(74,184,899)
230,686,698
–
652,467,387
889,931,321
(27,857,920)
10,577,171
568,600,507
(642,759,834) (1,572,144,058) (1,800,101,800)
(274,945,648) (626,717,563) (575,811,920)
–
–
–
(33,790,857)
–
–
(516,383,600)
(1,169,036,951)
(599,341,670)
370,043,605
–
3,042,742
841,343,498
15,000,000
5,725,352
965,253,259
–
466,116
(94,344,600)
520,967,502
15,820,227
657,999,988
(181,478,555)
888,339,234
(217,104,252)
(663,375,497) (2,455,121,077)
2,912,890,175
(1,110,022,633)
(1,287,180,900)
(1,508,069,536)
14,430,184,872
(5,272,635,144)
(1,140,132,158)
(1,398,391,183)
72
MANILA WATER ANNUAL REPORT 2013

MANILA WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2013
Years Ended December 31
2012
(As restated
Notes 2 and 17)
2011
(As restated
Notes 2 and 17)
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Notes 9 and 10)
Interest expense (Notes 16 and 19)
Provision for probable losses (Notes 6 and 31)
Share-based payments (Note 21)
Gain on disposal of AFS financial assets (Note 11)
Mark-to-market loss on derivatives (Note 28)
Loss on pre-termination of bonds (Note 16)
Equity share in net loss of joint venture (Note 12)
Gain on disposal of property and equipment
Loss (gain) on revaluation of receivable from Bonifacio Water
Corporation (Notes 6 and 14)
Equity share in net income of associate (Note 13)
Interest income (Note 19)
Operating income before changes in operating assets and liabilities
Changes in operating assets and liabilities
Decrease (increase) in:
Receivables
Materials and supplies
Service concession assets
Concession financial receivable
Other current assets
Increase (decrease) in:
Accounts and other payables
Pension liabilities
Payables to related parties
Net cash provided by operations
Income tax paid
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received
Acquisitions of:
Investments in associates (Notes 1 and 13)
Property and equipment (Note 9)
Available-for-sale financial assets (Note 11)
Subsidiary through business combination - net of cash acquired
Receivable from Bonifacio Water Corporation (Note 6)
Proceeds from:
Maturities of available-for-sale financial assets
Sale of shares of stock of a subsidiary (Notes 1 and 21)
Sale of property and equipment
Decrease (increase) in:
Short-term cash investments (Note 5)
Other noncurrent assets
Net cash provided by (used) in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt (Note 16):
Availments
Payments
Payments of service concession obligation (Note 10)
Payments of dividends (Note 21)
(Forward)
P P P
2,494,762,992
1,733,400,506
171,294,230
50,833,629
–
–
–
–
(13,448)
2,320,075,185
1,563,957,454
84,761,395
31,864,959
(13,112,046)
–
–
–
(4,352,290)
1,889,515,833
1,652,552,302
90,807,943
20,241,555
(12,007,215)
229,613,149
6,146,038
7,860,283
(69,687)
1,411,856
(293,975,032)
(113,488,599)
(206,762,409)
(172,825,432) (264,518,215)
11,577,022,982 10,496,770,331
–
–
(563,588,437)
8,560,616,719
40,374,240
7,704,418
6,195,926,714
(4,255,918,126)
(924,935,673)
(1,905,460,244)
(472,215,297)
45,489,899
(327,279,427)
(58,323,959)
(4,677,183,266) (5,710,773,652) (7,842,040,147)
(681,363,724)
391,470,005
(640,874,433)
(68,614,844)
111,459,197
6,059,994,575 4,548,704,330 1,858,091,145
(1,714,907,911) (1,384,792,142) (1,328,962,798)
4,345,086,664 3,163,912,188 529,128,347
133,816,460
–
(248,516,927)
589,092,433
(76,957,558)
(74,184,899)
230,686,698
–
652,467,387
889,931,321
(27,857,920)
10,577,171
568,600,507
(642,759,834) (1,572,144,058) (1,800,101,800)
(274,945,648) (626,717,563) (575,811,920)
–
–
–
(33,790,857)
–
–
(516,383,600)
(1,169,036,951)
(599,341,670)
370,043,605
–
3,042,742
841,343,498
15,000,000
5,725,352
965,253,259
–
466,116
(94,344,600)
520,967,502
15,820,227
657,999,988
(181,478,555)
888,339,234
(217,104,252)
(663,375,497) (2,455,121,077)
2,912,890,175
(1,110,022,633)
(1,287,180,900)
(1,508,069,536)
14,430,184,872
(5,272,635,144)
(1,140,132,158)
(1,398,391,183)
- 2 -
Collection of subscriptions receivable (Note 21)
Interest paid
Decrease in other noncurrent liabilities (Note 18)
Increase in non-controlling interests of consolidated subsidiaries
(Note 1)
Net cash provided by (used in) financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 5)
See accompanying Notes to Consolidated Financial Statements.
2013
Years Ended December 31
2012
(As restated
Notes 2 and 17)
2011
(As restated
Notes 2 and 17)
(1,515,973,850) (1,244,264,127) (1,276,435,421)
(1,047,922,996) (62,323,453) (644,043,429)
281,957,500 72,007,500 –
(3,121,277,130) (2,195,527,108) 4,748,221,967
1,239,629,761 305,009,583 2,822,229,237
5,540,151,084 5,235,141,501 2,412,912,264
P P P
73

MANILA WATER COMPANY, INC. AND SUBSIDIARIES
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Corporate Information
Manila Water Company, Inc. (the Parent Company) was incorporated on January 6, 1997 and started commercial operations on January 1, 2000. It became a publicly listed company via an initial public offering on March 18, 2005.
The Parent Company is a subsidiary of Ayala Corporation (AC). AC is a publicly listed company which is 50.66% owned by Mermac, Inc., 10.62% owned by Mitsubishi Corporation and the rest by the public. The Parent Company and its Subsidiaries (collectively referred to as the Group) are involved in providing water, sewerage and sanitation, distribution services, pipeworks and management services.
The Parent Company’s principal place of business is MWSS Administration Building, Katipunan Road, Balara,
Quezon City.
On May 31, 2004, International Finance Corporation (IFC) became one of the principal shareholders of the Parent
Company. AC held part of its shares in the Parent Company through MWC Holdings, Inc. (MWCHI) until MWCHI was merged into the Parent Company on October 12, 2004.
On December 23, 2004, AC and United Utilities Pacific Holdings, BV(UU) assigned and transferred their participating preferred shares in the Parent Company comprising of 2.0 billion and 1.33 billion shares, respectively, to Philwater
Holdings Company, Inc. (Philwater) in exchange for its 333.33 million common shares. Philwater is a special purpose company, 60.0% of which is owned by AC and 40.0% is owned by UU.
The Parent Company was a joint venture among AC, UU, a subsidiary of United Utilities PLC and Mitsubishi
Corporation until it became a subsidiary of AC in 2010. As of December 31, 2010 and 2009, Philwater owns
4.00 billion and 3.33 billion participating preferred shares, respectively, of the Parent Company. AC owns
651.91 million common shares of the Parent Company and has 60% share in Philwater which holds the whole
4.00 billion preferred shares of the Parent Company. These conditions warrant the treatment of the Parent Company as AC’s subsidiary.
On December 16, 2013, AC acquired 140 million common shares of the Parent Company representing 5.7% interest in the Company. The shares were acquired from its strategic partner, Mitsubishi Corporation, which has been a longtime partner of AC since 1974 and has been a shareholder of the Parent Company since 1997. AC’s stake in the
Parent Company increased from 43.1% to 48.8% while Mitsubishi remained a shareholder with a 1.2% interest. This
(PSE).
The consolidated financial statements comprise the financial statements of the Parent Company and the following wholly and majority owned subsidiaries:
Manila Water International Solutions, Inc. (MWIS)
Manila Water Total Solutions Corp. (MWTS)
Manila Water Asia Pacific Pte. Ltd. (MWAP)
Manila Water South Asia Holdings Pte. Ltd. (MWSAH)
Thu Duc Water Holdings Pte. Ltd. (TDWH)
Kenh Dong Water Holdings Pte. Ltd. (KDWH)
AAA Water Corporation (AWC)
Laguna AAAWater Corporation (LAWC)
Clark Water Corporation (CWC)
Manila Water Consortium Inc. (MW Consortium) [formerly
Northern Waterworks and Rivers of Cebu, Inc. (NWRC)]
Cebu Manila Water Development, Inc. (CMWD)
Boracay Island Water Company, Inc. (BIWC)
Country of
Incorporation
Philippines
-do-
Singapore
-do-
-do-
-do-
Philippines
-do-
-do-
Effective Percentages of Ownership
2013
100
100
100
100
100
100
100
70
100
2012
100
100
100
100
100
100
100
70
100
-do-
-do-
-do-
51
51
80
84
51
80
74
MANILA WATER ANNUAL REPORT 2013

MANILA WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Corporate Information
Manila Water Company, Inc. (the Parent Company) was incorporated on January 6, 1997 and started commercial operations on January 1, 2000. It became a publicly listed company via an initial public offering on March 18, 2005.
The Parent Company is a subsidiary of Ayala Corporation (AC). AC is a publicly listed company which is 50.66% owned by Mermac, Inc., 10.62% owned by Mitsubishi Corporation and the rest by the public. The Parent Company and its Subsidiaries (collectively referred to as the Group) are involved in providing water, sewerage and sanitation, distribution services, pipeworks and management services.
The Parent Company’s principal place of business is MWSS Administration Building, Katipunan Road, Balara,
Quezon City.
On May 31, 2004, International Finance Corporation (IFC) became one of the principal shareholders of the Parent
Company. AC held part of its shares in the Parent Company through MWC Holdings, Inc. (MWCHI) until MWCHI was merged into the Parent Company on October 12, 2004.
On December 23, 2004, AC and United Utilities Pacific Holdings, BV(UU) assigned and transferred their participating preferred shares in the Parent Company comprising of 2.0 billion and 1.33 billion shares, respectively, to Philwater
Holdings Company, Inc. (Philwater) in exchange for its 333.33 million common shares. Philwater is a special purpose company, 60.0% of which is owned by AC and 40.0% is owned by UU.
The Parent Company was a joint venture among AC, UU, a subsidiary of United Utilities PLC and Mitsubishi
Corporation until it became a subsidiary of AC in 2010. As of December 31, 2010 and 2009, Philwater owns
4.00 billion and 3.33 billion participating preferred shares, respectively, of the Parent Company. AC owns
651.91 million common shares of the Parent Company and has 60% share in Philwater which holds the whole
4.00 billion preferred shares of the Parent Company. These conditions warrant the treatment of the Parent Company as AC’s subsidiary.
On December 16, 2013, AC acquired 140 million common shares of the Parent Company representing 5.7% interest in the Company. The shares were acquired from its strategic partner, Mitsubishi Corporation, which has been a longtime partner of AC since 1974 and has been a shareholder of the Parent Company since 1997. AC’s stake in the
Parent Company increased from 43.1% to 48.8% while Mitsubishi remained a shareholder with a 1.2% interest. This
(PSE).
The consolidated financial statements comprise the financial statements of the Parent Company and the following wholly and majority owned subsidiaries:
Manila Water International Solutions, Inc. (MWIS)
Manila Water Total Solutions Corp. (MWTS)
Manila Water Asia Pacific Pte. Ltd. (MWAP)
Manila Water South Asia Holdings Pte. Ltd. (MWSAH)
Thu Duc Water Holdings Pte. Ltd. (TDWH)
Kenh Dong Water Holdings Pte. Ltd. (KDWH)
AAA Water Corporation (AWC)
Laguna AAAWater Corporation (LAWC)
Clark Water Corporation (CWC)
Manila Water Consortium Inc. (MW Consortium) [formerly
Northern Waterworks and Rivers of Cebu, Inc. (NWRC)]
Cebu Manila Water Development, Inc. (CMWD)
Boracay Island Water Company, Inc. (BIWC)
Country of
Incorporation
Philippines
-do-
Singapore
-do-
-do-
-do-
Philippines
-do-
-do-
Effective Percentages of Ownership
2013
100
100
100
100
100
100
100
70
100
2012
100
100
100
100
100
100
100
70
100
-do-
-do-
-do-
51
51
80
84
51
80
Unless otherwise indicated, the Philippines is the principal place of business and country of incorporation of the
Group’s investments in subsidiaries.
The voting rights held by the Group in its investments in subsidiaries are in proportion to its ownership interest.
MWAP incorporated TDWH in October 2011 and KDWH in June 2012 for the purpose of carrying on the business of investment holding, and to undertake and to transact all kinds of investment business (see Note 13).
In November 2011, the Parent Company acquired CWC, whose principal activity is to operate and maintain the water and sewerage system inside the Clark Freeport Zone (CFZ).
In March 2012, NWRC entered into a joint investment agreement with the Province of Cebu wherein NWRC will have
51% equity share in a joint venture company, whose principal activity is to provide bulk water supply to Cebu.
Subsequently, in May 2012, CMWD was incorporated pursuant to the joint investment agreement. NWRC also changed its business name to Manila Water Consortium, Inc. (MW Consortium).
In 2012, the Parent Company sold its 10% interest in MW Consortium to Vicsal Development Corporation for
Parent Company subscribed to additional shares in MW Consortium, thus increasing its ownership to 84% as of
December 31, 2012. In January 2013, Metropac Water Investments Corporation (MWIC) has entered into a subscription agreement with MW Consortium for 39% equity ownership. The entry of MWIC through the issuance of additional shares diluted the Parent Company’s ownership in MW Consortium from 84% to 51%.
Parent Company’s Concession Agreement with Metropolitan Waterworks and Sewerage System (MWSS)
On February 21, 1997, the Parent Company entered into a Concession Agreement (the Concession Agreement) with
MWSS, a government corporation organized and existing pursuant to Republic Act (RA) No. 6234, as amended, with respect to the MWSS East Zone (East Zone). The Concession Agreement sets forth the rights and obligations of the
Parent Company throughout the 25-year concession period. The MWSS Regulatory Office (MWSS-RO) monitors and reviews the performance of each of the Concessionaires - the Parent Company and Maynilad Water Services, Inc.
(Maynilad), the West Zone Concessionaire.
Under the Concession Agreement, MWSS grants the Parent Company (as contractor to perform certain functions and as agent for the exercise of certain rights and powers under RA No. 6234) the sole right to manage, operate, repair, decommission, and refurbish all fixed and movable assets (except certain retained assets) required to provide water delivery and sewerage services in the East Zone for a period of 25 years commencing on August 1, 1997 (the
Commencement Date) up to May 6, 2022 (the Expiration Date) or the early termination date as the case may be.
While the Parent Company has the right to manage, operate, repair and refurbish specified MWSS facilities in the
East Zone, legal title to these assets remains with MWSS. The legal title to all fixed assets contributed to the existing
MWSS system by the Parent Company during the Concession remains with the Parent Company until the Expiration
Date (or until the early termination date) at which time all rights, titles and interest in such assets will automatically vest in MWSS.
On Commencement Date, the Parent Company officially took over the operations of the East Zone and rehabilitation works for the service area commenced immediately thereafter. As provided in the Parent Company’s project plans, operational commercial capacity will be attained upon substantial completion of the rehabilitation work.
Under the Agreement, the Parent Company is entitled to the following rate adjustments: a.
Annual standard rate adjustment to compensate for increases in the consumer price index (CPI); b.
Extraordinary price adjustment (EPA) to account for the financial consequences of the occurrence of certain unforeseen events stipulated in the Concession Agreement; and c.
Foreign Currency Differential Adjustment (FCDA) to recover foreign exchange losses including accruals and carrying costs thereof arising from MWSS loans and any Concessionaire loans used for capital expenditures and concession fee payments, in accordance with the provisions set forth in Amendment No. 1 of the Concession
Agreement dated October 12, 2001 (see Notes 2, 10 and 16).
These rate adjustments are subject to a rate adjustment limit which is equivalent to the sum of CPI published in the
Philippines, EPA and Rebasing Convergence Adjustment as defined in the Concession Agreement.
The Concession Agreement also provides a general rate setting policy for rates chargeable by the Parent Company for water and sewerage services as follows:
1.
For the period through the second Rate Rebasing date (January 1, 2008), the maximum rates chargeable by the
Parent Company (subject to interim adjustments) are set out in the Concession Agreement; and
75

2.
From and after the second Rate Rebasing date, the rates for water and sewerage services shall be set at a level that will permit the Parent Company to recover, over the 25-year term of the concession, its investment including operating, capital maintenance and investment incurred, Philippine business taxes and payments corresponding to debt service on the MWSS loans and the Parent Company’s loans incurred to finance such expenditures, and to earn a rate of return equal to the appropriate discount rate (ADR) on these expenditures for the remaining term of the concession.
The maximum rates chargeable for such water and sewerage services shall be subject to general adjustment at fiveyear intervals commencing on the second Rate Rebasing date, provided that the MWSS-RO may exercise its discretion to make a general adjustment of such rates.
The Parent Company submitted a Business Plan which included proposed expenditures on (1) a Reliability
Investment Plan which will focus on service level sustainability, earthquake and natural calamity contingency and
Angat reliability, and (2) an Expansion Investment Plan which includes the development of new water sources, network expansion and implementation of the MWSS wastewater masterplan. These investments amount to an
On December 14, 2007, MWSS passed Resolution No. 2007-278 adopting and approving the MWSS-RO’s resolutions that contain the final evaluation and determination of the Parent Company’s Rate Rebasing Proposal.
Under the said resolution, the MWSS approved a one-time tariff adjustment of 75.07% over the basic tariff. However, in order to temper the increases in favor of the customers, the tariff adjustments were implemented on a staggered basis over a five year period, but adjusted for the net present value impact.
The said staggered implementation was premised on certain conditions, such as the adoption of additional performance targets and other conditions such as rationalization of sewerage and environmental charges, reclassification of some government institutions, among others. As of December 31, 2013, the Parent Company has complied with all these targets and conditions.
per cubic meter based on the basic charge.
On April 16, 2009, the MWSS Board of Trustees passed Resolution No. 2009-072 approving the 15-year extension of the Concession Agreement (the Extension) from May 7, 2022 to May 6, 2037. This resolution was confirmed by the
Department of Finance (by authority from the office of the President of the Republic of the Philippines) on October 19,
2009. The significant commitments under the Extension follow: a.
To mitigate tariff increases such that there will be reduction of the balance of the approved 2008 rebased tariff by
FCDA adjustments.
b.
To increase the share in the current operating budget support to MWSS by 100% as part of the concession fees starting 2009.
c.
To increase the total investments from the approved P
As a result of the increase in the annual regulatory cost, service concession assets and service concession of the Extension, the recovery period for the Parent Company’s investment is now extended by another 15 years from
2022 to 2037.
In March 2010, MWSS entered into a loan agreement with The Export-Import Bank of China to finance the Angat
Water Utilization and Aqueduct Improvement Project Phase II (the Project). Total loan facility amounted to
$116.60 million with maturity of 20 years including 5 years grace period. Interest rate is 3% per annum.
MWSS then entered into a Memorandum of Agreement with the Parent Company and Maynilad for the Parent
Company and Maynilad to shoulder equally the repayment of the loan with such repayment to be part of the concession fees.
In 2013, the Parent Company submitted the Rate Rebasing Proposals to MWSS for final evaluation as set forth in the
Concession Agreement. On September 10, 2013, MWSS-RO issued Resolution No. 13-09-CA providing for the
MWSS rate rebasing negative adjustment of negative 29.47% to the Parent Company’s 2012 average basic water
5.894% per charging year. Consequently, the Parent Company objects to MWSS’ Rate Rebasing Determination and thus brings the matter before the Appeals Panel, pursuant to the dispute resolution mechanism in the Concession
Agreement sections 9.4 and 12. The Parent Company formally filed its Dispute Notice on September 24, 2013, which officially commenced the arbitration process pursuant to the Concession Agreement with MWSS.
76
MANILA WATER ANNUAL REPORT 2013

2.
From and after the second Rate Rebasing date, the rates for water and sewerage services shall be set at a level that will permit the Parent Company to recover, over the 25-year term of the concession, its investment including operating, capital maintenance and investment incurred, Philippine business taxes and payments corresponding to debt service on the MWSS loans and the Parent Company’s loans incurred to finance such expenditures, and to earn a rate of return equal to the appropriate discount rate (ADR) on these expenditures for the remaining term of the concession.
The maximum rates chargeable for such water and sewerage services shall be subject to general adjustment at fiveyear intervals commencing on the second Rate Rebasing date, provided that the MWSS-RO may exercise its discretion to make a general adjustment of such rates.
The Parent Company submitted a Business Plan which included proposed expenditures on (1) a Reliability
Investment Plan which will focus on service level sustainability, earthquake and natural calamity contingency and
Angat reliability, and (2) an Expansion Investment Plan which includes the development of new water sources, network expansion and implementation of the MWSS wastewater masterplan. These investments amount to an
On December 14, 2007, MWSS passed Resolution No. 2007-278 adopting and approving the MWSS-RO’s resolutions that contain the final evaluation and determination of the Parent Company’s Rate Rebasing Proposal.
Under the said resolution, the MWSS approved a one-time tariff adjustment of 75.07% over the basic tariff. However, in order to temper the increases in favor of the customers, the tariff adjustments were implemented on a staggered basis over a five year period, but adjusted for the net present value impact.
The said staggered implementation was premised on certain conditions, such as the adoption of additional performance targets and other conditions such as rationalization of sewerage and environmental charges, reclassification of some government institutions, among others. As of December 31, 2013, the Parent Company has complied with all these targets and conditions.
per cubic meter based on the basic charge.
On April 16, 2009, the MWSS Board of Trustees passed Resolution No. 2009-072 approving the 15-year extension of the Concession Agreement (the Extension) from May 7, 2022 to May 6, 2037. This resolution was confirmed by the
Department of Finance (by authority from the office of the President of the Republic of the Philippines) on October 19,
2009. The significant commitments under the Extension follow: a.
To mitigate tariff increases such that there will be reduction of the balance of the approved 2008 rebased tariff by
FCDA adjustments.
b.
To increase the share in the current operating budget support to MWSS by 100% as part of the concession fees starting 2009.
c.
To increase the total investments from the approved P
As a result of the increase in the annual regulatory cost, service concession assets and service concession of the Extension, the recovery period for the Parent Company’s investment is now extended by another 15 years from
2022 to 2037.
In March 2010, MWSS entered into a loan agreement with The Export-Import Bank of China to finance the Angat
Water Utilization and Aqueduct Improvement Project Phase II (the Project). Total loan facility amounted to
$116.60 million with maturity of 20 years including 5 years grace period. Interest rate is 3% per annum.
MWSS then entered into a Memorandum of Agreement with the Parent Company and Maynilad for the Parent
Company and Maynilad to shoulder equally the repayment of the loan with such repayment to be part of the concession fees.
In 2013, the Parent Company submitted the Rate Rebasing Proposals to MWSS for final evaluation as set forth in the
Concession Agreement. On September 10, 2013, MWSS-RO issued Resolution No. 13-09-CA providing for the
MWSS rate rebasing negative adjustment of negative 29.47% to the Parent Company’s 2012 average basic water
5.894% per charging year. Consequently, the Parent Company objects to MWSS’ Rate Rebasing Determination and thus brings the matter before the Appeals Panel, pursuant to the dispute resolution mechanism in the Concession
Agreement sections 9.4 and 12. The Parent Company formally filed its Dispute Notice on September 24, 2013, which officially commenced the arbitration process pursuant to the Concession Agreement with MWSS.
On December 10, 2013, the MWSS Board of Trustees thru R.O. Resolution No. 13-012 CA, approved the implementation of a Status Quo for Manila Water’s Standard Rates and FCDA for any and all of its scheduled adjustments, until such time that the Appeals Panel has issued the Final Award for the 2013 Rate Rebasing determination. The adjustments resulting from the status quo for FCDA shall be reckoned upon resumption of said adjustments, subject to the principle of no-over recovery or no-under recovery.
LAWC’s Concession Agreement with the Province of Laguna (POL)
On April 9, 2002, LAWC entered into a concession agreement (as amended on March 31, 2004 and July 22, 2009) with POL, a local government unit organized and existing under Philippine Laws.
Under the terms of the concession agreement, POL grants LAWC (as contractor and as agent for the exercise of certain rights in Laguna) the sole and exclusive right and discretion during the concession period to manage, occupy, operate, repair, maintain, decommission and refurbish the identified facilities required to provide water services to specific areas for an operational period of 25 years.
While LAWC has the right to manage, occupy, operate, repair, maintain, decommission and refurbish specified POL facilities, legal title to these assets shall still remain with POL. Legal title to all assets procured by LAWC in the performance of its obligations under the agreement shall remain with LAWC and shall not pass to POL. LAWC will also have exclusive rights to provide water services in the service areas specified in the concession agreement.
Concession fees set forth in the concession agreement shall be computed as a percentage of revenue from water services (see Note 10).
Seventy percent (70%) of the concession fees shall be applied against any advances made by LAWC to POL. The remaining thirty percent (30%) of the concession fees shall be payable annually 30 days after the submission of the audited financial statements by LAWC, starting on the first operational period, which will begin upon the expiration of the transition period. LAWC started its operational period on January 1, 2010.
BIWC’s Concession Agreement with Tourism Infrastructure and Enterprise Zone
Authority (TIEZA)
On December 17, 2009, BIWC entered into a concession agreement with TIEZA, formerly Philippine Tourism
Authority (PTA), for a period of 25 years, with commencement date on January 1, 2010 and renewable at any time prior to expiration for another 25 years, without necessity of bidding.
applied as payment of, and shall be offset against the annual concession fees payable to TIEZA equivalent to 5% of the annual gross revenue of BIWC.
Under its concession agreement, BIWC is entitled to the following rate adjustments: a.
Annual standard rate adjustment to compensate for increases in the consumer CPI; b.
EPA to account for the financial consequences of the occurrence of certain unforeseen events stipulated in the
Agreement; and c.
FCDA to recover foreign exchange losses including accruals and carrying costs thereof arising from TIEZA loans and any loans used for capital expenditures and concession fee payments (see Notes 2, 10 and 16).
These rate adjustments are subject to a rate adjustment limit which is equivalent to the sum of CPI published in the
Philippines, EPA and Rebasing Convergence adjustment as defined in BIWC’s concession agreement.
The rate rebasing date is set every 5 years starting January 1, 2011. Hence, the first rate rebasing period shall commence on January 1, 2010 and end on December 31, 2010, and in the case of subsequent rate rebasing periods, the period commencing on the last rate rebasing date and ending on December 31 of the fifth year thereafter. No rate rebasing transpired on January 1, 2011.
BIWC requested for the deferment of the rate rebasing since it was not able to commence operations in June 2009, as originally planned, because the SEC required the Company to seek conformity from the Department of Finance before it could be incorporated.
In January 2013, TIEZA approved the new water rates for BIWC which is equivalent to an increase from its existing rates of 35% to be implemented on a staggered basis for a period of four years with 10.10% increase in 2013; 9.18% for 2014; 8.40% in 2015; and 7.75% in 2016, effective February 1, 2013.
Also part of the concession agreement, BIWC assumed certain property and equipment of Boracay Water Sewerage
System (BWSS), as well as its outstanding loan from Japan International Cooperation Agency (JICA) and regulatory costs.
77

concession assets on commencement date. It includes the JICA loan assumed by BIWC, regulatory costs, construction costs for the improvement and expansion of the water and wastewater facilities and the advanced concession fees.
CWC’s Concession Agreement with Clark Development Corporation (CDC)
On March 16, 2000, Vivendi Water Philippines, Inc. which subsequently changed its name to Veolia Water
Philippines, Inc (VWPI), entered into a concession agreement with Clark Development Corporation (CDC), a government corporation organized and existing under Executive Order No. 80, series of 1993. The concession agreement sets out the terms and conditions under which VWPI will finance, design, construct, operate and maintain the water and sewerage system inside the CFZ commencing on October 1, 2000 and ending on the date falling
25 years thereafter or as may be extended by the terms of the concession agreement. As the implementing arm of the Bases Conversion Development Authority and the regulatory and development body for the CFZ, CDC has the power and authority to regulate and monitor the performance and compliance of VWPI, or its assignee, with its obligations under the concession agreement.
On September 1, 2000, in accordance with the terms of the concession agreement, VWPI assigned its rights and obligations under the concession agreement to CWC by virtue of an assignment and assumption agreement between
VWPI and CWC.
As consideration for the grant of the concession and franchise to develop, operate and maintain the water and
On September 29, 2000, CDC leased in favor of CWC the existing facilities in compliance with the condition precedent to the effectivity of and the respective obligations of CWC and CDC under the concession agreement.
period unless sooner terminated for any of the reasons specified in the concession agreement.
MW Consortium Agreement with the Provincial Government of Cebu (PGC)
On March 21, 2012, MW Consortium has signed a joint investment agreement with the PGC for the formation of a joint venture company with 51% and 49% equity participation for MW Consortium and the PGC, respectively. Under the joint investment agreement, the parties agreed to develop and operate a bulk water supply system that will supply
35.00 million liters of water per day to target areas in the province of Cebu with the joint venture company serving as a bulk water provider. The term of the agreement is 30 years starting March 2012, renewable for another 25 years.
MW Consortium and the PGC incorporated CMWD pursuant to the joint investment agreement.
On December 13, 2013, CMWD received a Notice of Award for the bulk supply of water to the Metropolitan Cebu
Water District (MCWD). On December 18, 2013, CMWD and MCWD signed a 20-year Bulk Water Supply Contract for the supply of 18 million liters per day of water for the first year and 35 million liters per day of water for years 2 up to 20. Initial delivery of water is expected to occur after 6 months from the signing of the Bulk Water Supply Contract.
Asset Purchase Agreement with LTI
On December 23, 2013, LAWC signed an Asset Purchase Agreement with Laguna Technopark, Inc. (LTI) with a as the exclusive water service provider of LTI starting December 31, 2013.
MWSAH acquisition of Saigon Water
On October 8, 2013, the Parent Company thru its subsidiary MWSAH, acquired a 31.47% minority stake in Saigon
Water Infrastructure Corporation (Saigon Water) equivalent to 18.37 million shares at VND16,900 per share for a total
Approval for the Issuance of the Consolidated Financial Statements
The Board of Directors (BOD) approved and authorized the issuance of the accompanying consolidated financial statements on February 20, 2014.
2.
Summary of Significant Accounting Policies
Basis of Preparation
The consolidated financial statements of the Group have been prepared using the historical cost basis, except for available-for-sale (AFS) financial assets that have been measured at fair value. The Group’s presentation and
78
MANILA WATER ANNUAL REPORT 2013

concession assets on commencement date. It includes the JICA loan assumed by BIWC, regulatory costs, construction costs for the improvement and expansion of the water and wastewater facilities and the advanced concession fees.
CWC’s Concession Agreement with Clark Development Corporation (CDC)
On March 16, 2000, Vivendi Water Philippines, Inc. which subsequently changed its name to Veolia Water
Philippines, Inc (VWPI), entered into a concession agreement with Clark Development Corporation (CDC), a government corporation organized and existing under Executive Order No. 80, series of 1993. The concession agreement sets out the terms and conditions under which VWPI will finance, design, construct, operate and maintain the water and sewerage system inside the CFZ commencing on October 1, 2000 and ending on the date falling
25 years thereafter or as may be extended by the terms of the concession agreement. As the implementing arm of the Bases Conversion Development Authority and the regulatory and development body for the CFZ, CDC has the power and authority to regulate and monitor the performance and compliance of VWPI, or its assignee, with its obligations under the concession agreement.
On September 1, 2000, in accordance with the terms of the concession agreement, VWPI assigned its rights and obligations under the concession agreement to CWC by virtue of an assignment and assumption agreement between
VWPI and CWC.
As consideration for the grant of the concession and franchise to develop, operate and maintain the water and
On September 29, 2000, CDC leased in favor of CWC the existing facilities in compliance with the condition precedent to the effectivity of and the respective obligations of CWC and CDC under the concession agreement.
period unless sooner terminated for any of the reasons specified in the concession agreement.
MW Consortium Agreement with the Provincial Government of Cebu (PGC)
On March 21, 2012, MW Consortium has signed a joint investment agreement with the PGC for the formation of a joint venture company with 51% and 49% equity participation for MW Consortium and the PGC, respectively. Under the joint investment agreement, the parties agreed to develop and operate a bulk water supply system that will supply
35.00 million liters of water per day to target areas in the province of Cebu with the joint venture company serving as a bulk water provider. The term of the agreement is 30 years starting March 2012, renewable for another 25 years.
MW Consortium and the PGC incorporated CMWD pursuant to the joint investment agreement.
On December 13, 2013, CMWD received a Notice of Award for the bulk supply of water to the Metropolitan Cebu
Water District (MCWD). On December 18, 2013, CMWD and MCWD signed a 20-year Bulk Water Supply Contract for the supply of 18 million liters per day of water for the first year and 35 million liters per day of water for years 2 up to 20. Initial delivery of water is expected to occur after 6 months from the signing of the Bulk Water Supply Contract.
Asset Purchase Agreement with LTI
On December 23, 2013, LAWC signed an Asset Purchase Agreement with Laguna Technopark, Inc. (LTI) with a as the exclusive water service provider of LTI starting December 31, 2013.
MWSAH acquisition of Saigon Water
On October 8, 2013, the Parent Company thru its subsidiary MWSAH, acquired a 31.47% minority stake in Saigon
Water Infrastructure Corporation (Saigon Water) equivalent to 18.37 million shares at VND16,900 per share for a total
Approval for the Issuance of the Consolidated Financial Statements
The Board of Directors (BOD) approved and authorized the issuance of the accompanying consolidated financial statements on February 20, 2014.
2.
Summary of Significant Accounting Policies
Basis of Preparation
The consolidated financial statements of the Group have been prepared using the historical cost basis, except for available-for-sale (AFS) financial assets that have been measured at fair value. The Group’s presentation and
Statement of Compliance
The consolidated financial statements of the Group have been prepared in compliance with Philippine Financial
Reporting Standards (PFRS).
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Group as of December 31, 2013, 2012 and January 1, 2012, and for each of the three years in the period ended December 31, 2013.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: a) power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); b) exposure, or rights, to variable returns from its involvement with the investee; and c) the ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: a) the contractual arrangement with the other vote holders of the investee; b) rights arising from other contractual arrangements; and c) the Group’s voting rights and potential voting rights
The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it:
 derecognises the assets (including goodwill) and liabilities of the subsidiary;
 derecognises the carrying amount of any non-controlling interests;
 derecognises the cumulative translation differences recorded in equity;
 recognises the fair value of the consideration received;
 recognises the fair value of any investment retained;
 recognises any surplus or deficit in profit or loss; and
 reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities
79

Changes in Accounting Policies and Disclosures
The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those of the previous financial years except for the new PFRS, amended PFRS and improvements to PFRS which were adopted as of January 1, 2013. Except as otherwise stated, the nature and the impact of each of new standards and amendments are described below:
 PFRS 7, Financial instruments: Disclosures
-
Offsetting Financial Assets and Financial Liabilities (Amendments)
These amendments require an entity to disclose information about rights of set-off and related arrangements
(such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32, Financial Instruments: Presentation . These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period: a) The gross amounts of those recognized financial assets and recognized financial liabilities; b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the net amounts presented in the statement of financial position; c) The net amounts presented in the statement of financial position; d) The amounts subject to an enforceable master netting arrangement or similar agreement that are not otherwise included in (b) above, including: i. Amounts related to recognized financial instruments that do not meet some or all of the offsetting criteria in
PAS 32; and ii. Amounts related to financial collateral (including cash collateral); and e) The net amount after deducting the amounts in (d) from the amounts in (c) above.
The amendments to PFRS 7 are to be retrospectively applied and are effective for annual periods beginning on or after January 1, 2013. The amendments affect disclosures only and will have no impact on the Group’s financial position of performance since the Group does not have financial instruments that are set off in accordance with criteria in PAS 32.
 PFRS 10, Consolidated Financial Statements
PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements , that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC 12, Consolidation -
Special Purpose Entities . PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27.
The Group has concluded in its assessment of its investments as of December 31, 2013, that even with the adoption of PFRS 10: (a) all existing subsidiaries shall remain to be fully consolidated with the Group’s consolidated financial statements as management control over these entities remain the same; and (b) the existing associates will not have to be consolidated since the management only has significant influence over these investee companies and does not have the ability to use power to affect the amount of its returns from its involvement with the investee companies.
 PFRS 11, Joint Arrangements
PFRS 11 replaces PAS 31, Interests in Joint Ventures, and SIC 13 , Jointly Controlled
Entities - Non-monetary Contributions by Venturers . PFRS 11 removes the option to account for jointly controlled entities using proportionate consolidation. Instead, jointly controlled entities that meet the definition of a joint venture must be accounted for using the equity method. The adoption of this standard will have no impact in the
Group’s financial position and performance since the Group does not have jointly controlled entities after it has sold in 2011 its ownership interest in Jindal Manila Water Development, Co. Ltd. (JMWD), a joint venture company established through a Joint Venture Agreement with Jindal Water Infrastructure Limited (JITF Water) in
2010.
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MANILA WATER ANNUAL REPORT 2013

Changes in Accounting Policies and Disclosures
The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those of the previous financial years except for the new PFRS, amended PFRS and improvements to PFRS which were adopted as of January 1, 2013. Except as otherwise stated, the nature and the impact of each of new standards and amendments are described below:
 PFRS 7, Financial instruments: Disclosures
-
Offsetting Financial Assets and Financial Liabilities (Amendments)
These amendments require an entity to disclose information about rights of set-off and related arrangements
(such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32, Financial Instruments: Presentation . These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period: a) The gross amounts of those recognized financial assets and recognized financial liabilities; b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the net amounts presented in the statement of financial position; c) The net amounts presented in the statement of financial position; d) The amounts subject to an enforceable master netting arrangement or similar agreement that are not otherwise included in (b) above, including: i. Amounts related to recognized financial instruments that do not meet some or all of the offsetting criteria in
PAS 32; and ii. Amounts related to financial collateral (including cash collateral); and e) The net amount after deducting the amounts in (d) from the amounts in (c) above.
The amendments to PFRS 7 are to be retrospectively applied and are effective for annual periods beginning on or after January 1, 2013. The amendments affect disclosures only and will have no impact on the Group’s financial position of performance since the Group does not have financial instruments that are set off in accordance with criteria in PAS 32.
 PFRS 10, Consolidated Financial Statements
PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements , that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC 12, Consolidation -
Special Purpose Entities . PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27.
The Group has concluded in its assessment of its investments as of December 31, 2013, that even with the adoption of PFRS 10: (a) all existing subsidiaries shall remain to be fully consolidated with the Group’s consolidated financial statements as management control over these entities remain the same; and (b) the existing associates will not have to be consolidated since the management only has significant influence over these investee companies and does not have the ability to use power to affect the amount of its returns from its involvement with the investee companies.
 PFRS 11, Joint Arrangements
PFRS 11 replaces PAS 31, Interests in Joint Ventures, and SIC 13 , Jointly Controlled
Entities - Non-monetary Contributions by Venturers . PFRS 11 removes the option to account for jointly controlled entities using proportionate consolidation. Instead, jointly controlled entities that meet the definition of a joint venture must be accounted for using the equity method. The adoption of this standard will have no impact in the
Group’s financial position and performance since the Group does not have jointly controlled entities after it has sold in 2011 its ownership interest in Jindal Manila Water Development, Co. Ltd. (JMWD), a joint venture company established through a Joint Venture Agreement with Jindal Water Infrastructure Limited (JITF Water) in
2010.
 PFRS 12 , Disclosure of Interests in Other Entities
PFRS 12 includes all of the disclosures related to consolidated financial statements that were previously in PAS
27 as well as all the disclosures that were previously included in PAS 31 and PAS 28 .
These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. The adoption of this standard will not have a significant impact on the Group’s financial position and performance since the Group assessed that there will be no significant changes in the disclosures required by PAS 27, 28 and 31.
 PFRS 13, Fair Value Measurement
PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted. This Standard should be applied prospectively as of the beginning of the annual period in which it is initially applied. Its disclosure requirements need not be applied in comparative information provided for periods before initial application of PFRS 13.
The Group does not consider that the definition of fair value that is applied in PFRS 13 differs in a material way from its current approach and consequently anticipates there will not be any impact from this standard on its financial position. However, PFRS 13 does expand the disclosure requirements in respect of fair value measurement.
 PAS 1, Presentation of Financial Statements - Presentation of Items of Other Comprehensive Income
( Amendments)
The amendments to PAS 1 change the grouping of items presented in OCI. Items that can be reclassified (or
“recycled”) to profit or loss at a future point in time (for example, upon derecognition or settlement) will be presented separately from items that will never be recycled. The amendment becomes effective for annual periods beginning on or after July 1, 2012. The amendments affect presentation only and have no impact on the
Group’s financial position or performance. The amendments will be applied retrospectively and will result to modification of the presentation of items in OCI including unrealized gains on AFS financial assets, actuarial gains (losses) on pension liabilities and cumulative translation adjustments.
 PAS 19, Employee Benefits (Revised)
On 1 January 2013, the Group adopted the Revised PAS 19 Employee Benefits. For defined benefit plans, the
Revised PAS 19 requires all actuarial gains and losses to be recognized in other comprehensive income and unvested past service costs previously recognized over the average vesting period to be recognized immediately in profit or loss when incurred.
Prior to adoption of the Revised PAS 19, the Group recognized actuarial gains and losses as income or expense when the net cumulative unrecognized gains and losses for each individual plan at the end of the previous period exceeded 10% of the higher of the defined benefit obligation and the fair value of the plan assets, and recognized unvested past service costs as an expense on a straight-line basis over the average vesting period until the benefits become vested. Upon the adoption of the revised PAS 19, the Group changed its accounting policy to recognize all actuarial gains and losses in other comprehensive income and all past service costs in profit or loss in the period they occur.
The Revised PAS 19 replaced the interest cost and expected return on plan assets with the concept of net interest on defined benefit liability or asset which is calculated by multiplying the net balance sheet defined benefit liability or asset by the discount rate used to measure the employee benefit obligation, each as at the beginning of the annual period.
The Revised PAS 19 also amended the definition of short-term employee benefits and requires employee benefits to be classified as short-term based on expected timing of settlement rather than the employee’s entitlement to the benefits. In addition, the Revised PAS 19 modifies the timing of recognition for termination benefits. The modification requires the termination benefits to be recognized at the earlier of when the offer cannot be withdrawn or when the related restructuring costs are recognized.
Changes to definition of short-term employee benefits and timing of recognition for termination benefits do not have any impact to the Group’s financial position and financial performance.
81

The changes in accounting policies have been applied retrospectively. The effects of adoption on the financial statements are as follows:
December 31
2013 2012
January 1
2012 Increase (Decrease) in:
Consolidated statements of financial position
Net pension liabilities
Deferred tax asset
Other comprehensive income
Retained earnings
Non-controlling interests
956,367
(140,789,327)
456,537
(73,094,257)
358,407
23,337,817
(71,974,004) (122,640,577) (126,599,973)
(1,118,950) (1,423,490) (104,404)
Increase (Decrease) in:
Consolidated income statements
Finance costs
General and administrative expenses
Income before income tax
Income tax benefit (expense)
Net income
Attributable to the owners of the Parent Company
Attributable to non-controlling interests
Basic/Diluted earnings per share
December 31
2013
57,195,900
(75,445,000)
22,633,500
(52,811,500)
(52,506,960)
(304,540)
2012
(76,957,558)
51,985,658
(15,595,697)
36,389,961
35,070,875
1,319,086
January 1
2012
(27,857,920)
4,063,800
(1,219,140)
2,844,660
2,740,256
104,404
Increase (Decrease) in:
Consolidated statements of comprehensive income
Remeasurement loss of net pension liability
Income tax effects
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Attributable to the owners of the Parent Company
Attributable to non-controlling interests
December 31
2013 2012
(P =96,530,204)
499,830 98,130
(67,695,070)
(120,506,570)
(120,105,196)
(401,374)
(96,432,074)
(60,042,113)
(61,292,508)
1,250,395
January 1
2012
358,407
23,337,817
26,182,477
26,328,958
(146,481)
The adoption did not have impact on consolidated statements of cash flows.
Change of presentation
Upon adoption of the Revised PAS 19, the presentation of the income statement was updated to reflect these changes. Net interest is now shown under the interest expense line item (previously under salaries, wages and employee benefits). This presentation better reflects the nature of net interest since it corresponds to the compounding effect of the long-term net defined benefit liability. In the past, the expected return on plan assets reflected the individual performance of the plan assets, which were regarded as part of the operating activities.
Restatement
Prior periods have been restated due to early adoption of Revised PAS 19 and the change in the presentation of the consolidated statements of comprehensive income.
 PAS 27, Separate Financial Statements (as revised in 2011)
As a consequence of the issuance of the new PFRS 10 and PFRS 12, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in the separate financial statements. The adoption of the amended PAS 27 will not have a significant impact on the separate financial statements of the entities in the Group since the Group’s accounting policy is already consistent with the revised PAS 27.
 PAS 28, Investments in Associates and Joint Ventures (as revised in 2011)
As a consequence of the issuance of the new PFRS 11 and PFRS 12, PAS 28 has been renamed and describes the application of the equity method to investments in joint ventures in addition to associates. The adoption of the amended PAS 28 will not have an impact on the Group’s consolidated financial statements since the Group is
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MANILA WATER ANNUAL REPORT 2013

The changes in accounting policies have been applied retrospectively. The effects of adoption on the financial statements are as follows:
December 31
2013 2012
January 1
2012 Increase (Decrease) in:
Consolidated statements of financial position
Net pension liabilities
Deferred tax asset
Other comprehensive income
Retained earnings
Non-controlling interests
956,367
(140,789,327)
456,537
(73,094,257)
(71,974,004) (122,640,577)
(1,118,950) (1,423,490)
358,407
23,337,817
(126,599,973)
(104,404)
Increase (Decrease) in:
Consolidated income statements
Finance costs
General and administrative expenses
Income before income tax
Income tax benefit (expense)
Net income
Attributable to the owners of the Parent Company
Attributable to non-controlling interests
Basic/Diluted earnings per share
December 31
2013
57,195,900
(75,445,000)
22,633,500
(52,811,500)
(52,506,960)
(304,540)
2012
(76,957,558)
51,985,658
(15,595,697)
36,389,961
35,070,875
1,319,086
January 1
2012
(27,857,920)
4,063,800
(1,219,140)
2,844,660
2,740,256
104,404
Increase (Decrease) in:
Consolidated statements of comprehensive income
Remeasurement loss of net pension liability
Income tax effects
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Attributable to the owners of the Parent Company
Attributable to non-controlling interests
December 31
2013 2012
(P =96,530,204)
499,830 98,130
(67,695,070)
(120,506,570)
(120,105,196)
(401,374)
(96,432,074)
(60,042,113)
(61,292,508)
1,250,395
January 1
2012
358,407
23,337,817
26,182,477
26,328,958
(146,481)
The adoption did not have impact on consolidated statements of cash flows.
Change of presentation
Upon adoption of the Revised PAS 19, the presentation of the income statement was updated to reflect these changes. Net interest is now shown under the interest expense line item (previously under salaries, wages and employee benefits). This presentation better reflects the nature of net interest since it corresponds to the compounding effect of the long-term net defined benefit liability. In the past, the expected return on plan assets reflected the individual performance of the plan assets, which were regarded as part of the operating activities.
Restatement
Prior periods have been restated due to early adoption of Revised PAS 19 and the change in the presentation of the consolidated statements of comprehensive income.
 PAS 27, Separate Financial Statements (as revised in 2011)
As a consequence of the issuance of the new PFRS 10 and PFRS 12, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in the separate financial statements. The adoption of the amended PAS 27 will not have a significant impact on the separate financial statements of the entities in the Group since the Group’s accounting policy is already consistent with the revised PAS 27.
 PAS 28, Investments in Associates and Joint Ventures (as revised in 2011)
As a consequence of the issuance of the new PFRS 11 and PFRS 12, PAS 28 has been renamed and describes the application of the equity method to investments in joint ventures in addition to associates. The adoption of the amended PAS 28 will not have an impact on the Group’s consolidated financial statements since the Group is already accounting for its investments in associates using the equity method and the Group does not have existing investments in joint ventures.
 Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine
This interpretation applies to waste removal costs (“stripping costs”) that are incurred in surface mining activity during the production phase of the mine (“production stripping costs”). If the benefit from the stripping activity will be realized in the current period, an entity is required to account for the stripping activity costs as part of the cost of inventory. When the benefit is the improved access to ore, the entity should recognize these costs as a noncurrent asset, only if certain criteria are met (“stripping activity asset”). The stripping activity asset is accounted for as an addition to, or as an enhancement of, an existing asset. After initial recognition, the stripping activity asset is carried at its cost or revalued amount less depreciation or amortization and less impairment losses, in the same way as the existing asset of which it is a part. The interpretation is not relevant to the Group as the Group is not involved in mining activities.
 PFRS 1, First-time Adoption of PFRS – Government Loans (Amendments)
The amendments to PFRS 1 require first-time adopters to apply the requirements of PAS 20, Accounting for
Government Grants and Disclosure of Government Assistance , prospectively to government loans existing at the date of transition to PFRS. However, entities may choose to apply the requirements of PAS 39, Financial
Instruments: Recognition and Measurement , and PAS 20 to government loans retrospectively if the information needed to do so had been obtained at the time of initially accounting for those loans. These amendments are not relevant to the Group.
Annual Improvements to PFRSs (2009-2011 cycle)
The Annual Improvements to PFRSs (2009-2011 cycle) contain non-urgent but necessary amendments to PFRSs.
The Group adopted these amendments for the current year.
 PFRS 1, First-time Adoption of PFRS - Borrowing Costs
The amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowing costs in accordance with its previous generally accepted accounting principles, may carry forward, without any adjustment, the amount previously capitalized in its opening statement of financial position at the date of transition. Subsequent to the adoption of PFRS, borrowing costs are recognized in accordance with PAS 23, Borrowing Costs . The amendment does not apply to the Group as it is not a first-time adopter of PFRS.
 PAS 1, Presentation of Financial Statements - Clarification of the Requirements for Comparative Information
The amendments clarify the requirements for comparative information that are disclosed voluntarily and those that are mandatory due to retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements. An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The additional comparative period does not need to contain a complete set of financial statements. On the other hand, supporting notes for the third balance sheet (mandatory when there is a retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements) are not required.
The amendment will not have significant impact on the Group’s consolidated financial statements since the comparative information disclosures are in accordance with the requirements of PAS 1.
 PAS 16, Property, Plant and Equipment - Classification of Servicing Equipment
The amendment clarifies that spare parts, stand-by equipment and servicing equipment should be recognized as property, plant and equipment when they meet the definition of property, plant and equipment and if otherwise, should be recognized as inventory.
The amendment will not have any impact on the Group’s financial position and performance since the spare parts and servicing equipment meet the definition of property and equipment in accordance with PAS 16.
 PAS 32, Financial Instruments: Presentation - Tax Effect of Distribution to Holders of Equity Instruments
The amendment clarifies that income taxes relating to distributions to equity holders and to transaction costs of an equity transaction are accounted for in accordance with PAS 12. This amendment will not have any impact on the Group’s financial position or performance.
83

 PAS 34, Interim Financial Reporting - Interim financial reporting and segment information for total assets and liabilities
The amendment clarifies that the total assets and liabilities for a particular reportable segment need to be disclosed only when the amounts are regularly provided to the chief operating decision maker and there has been a material change from the amount disclosed in the entity’s previous annual financial statements for that reportable segment. The amendment affects disclosures only and has no impact on the Group’s financial position or performance.
Future Changes in Accounting Policies
The Group will adopt the following new and amended standards and interpretations enumerated below when these become effective. Except as otherwise indicated, the Group does not expect the adoption of these new and amended
PFRS and Philippine Interpretations to have significant impact on the consolidated financial statements.
Effective 2014
 PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets (Amendments)
These amendments remove the unintended consequences of PFRS 13 on the disclosures required under PAS
36. In addition, these amendments require disclosure of the recoverable amounts for the assets or cashgenerating units (CGUs) for which impairment loss has been recognized or reversed during the period. These amendments are effective retrospectively for annual periods beginning on or after January 1, 2014 with earlier application permitted, provided PFRS 13 is also applied. The amendment affects disclosures only and has no impact on the Group’s financial position or performance.
 Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27)
These amendments are effective for annual periods beginning on or after
January 1, 2014. They provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under PFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. It is not expected that this amendment would be relevant to the
Group since none of the entities in the Group would qualify to be an investment entity under PFRS 10.
 Philippine Interpretation IFRIC 21, Levies (IFRIC 21)
IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached.
IFRIC 21 is effective for annual periods beginning on or after January 1, 2014. The Group does not expect that
IFRIC 21 will have material financial impact in future financial statements.
 PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives and Continuation of
Hedge Accounting ( Amendments)
These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. These amendments are effective for annual periods beginning on or after January 1, 2014. The Group has not novated its derivatives during the current period. However, these amendments would be considered for future novations.

PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (Amendments)
The amendments clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The amendments to PAS 32 are to be retrospectively applied for annual periods beginning on or after January 1, 2014. This amendment is not expected to impact the financial position or performance of the Group because offsetting is presented only when the requirements of PAS 32 are met.
Effective 2015
 PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions (Amendments)
The amendments apply to contributions from employees or third parties to defined benefit plans. Contributions that are set out in the formal terms of the plan shall be accounted for as reductions to current service costs if they are linked to service or as part of the remeasurements of the net defined benefit asset or liability if they are not linked to service. Contributions that are discretionary shall be accounted for as reductions of current service cost upon payment of these contributions to the plans. The amendments to PAS 19 are to be retrospectively applied for annual periods beginning on or after July 1, 2014.
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MANILA WATER ANNUAL REPORT 2013

 PAS 34, Interim Financial Reporting - Interim financial reporting and segment information for total assets and liabilities
The amendment clarifies that the total assets and liabilities for a particular reportable segment need to be disclosed only when the amounts are regularly provided to the chief operating decision maker and there has been a material change from the amount disclosed in the entity’s previous annual financial statements for that reportable segment. The amendment affects disclosures only and has no impact on the Group’s financial position or performance.
Future Changes in Accounting Policies
The Group will adopt the following new and amended standards and interpretations enumerated below when these become effective. Except as otherwise indicated, the Group does not expect the adoption of these new and amended
PFRS and Philippine Interpretations to have significant impact on the consolidated financial statements.
Effective 2014
 PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets (Amendments)
These amendments remove the unintended consequences of PFRS 13 on the disclosures required under PAS
36. In addition, these amendments require disclosure of the recoverable amounts for the assets or cashgenerating units (CGUs) for which impairment loss has been recognized or reversed during the period. These amendments are effective retrospectively for annual periods beginning on or after January 1, 2014 with earlier application permitted, provided PFRS 13 is also applied. The amendment affects disclosures only and has no impact on the Group’s financial position or performance.
 Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27)
These amendments are effective for annual periods beginning on or after
January 1, 2014. They provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under PFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. It is not expected that this amendment would be relevant to the
Group since none of the entities in the Group would qualify to be an investment entity under PFRS 10.
 Philippine Interpretation IFRIC 21, Levies (IFRIC 21)
IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached.
IFRIC 21 is effective for annual periods beginning on or after January 1, 2014. The Group does not expect that
IFRIC 21 will have material financial impact in future financial statements.
 PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives and Continuation of
Hedge Accounting ( Amendments)
These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. These amendments are effective for annual periods beginning on or after January 1, 2014. The Group has not novated its derivatives during the current period. However, these amendments would be considered for future novations.

PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (Amendments)
The amendments clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The amendments to PAS 32 are to be retrospectively applied for annual periods beginning on or after January 1, 2014. This amendment is not expected to impact the financial position or performance of the Group because offsetting is presented only when the requirements of PAS 32 are met.
Effective 2015
 PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions (Amendments)
The amendments apply to contributions from employees or third parties to defined benefit plans. Contributions that are set out in the formal terms of the plan shall be accounted for as reductions to current service costs if they are linked to service or as part of the remeasurements of the net defined benefit asset or liability if they are not linked to service. Contributions that are discretionary shall be accounted for as reductions of current service cost upon payment of these contributions to the plans. The amendments to PAS 19 are to be retrospectively applied for annual periods beginning on or after July 1, 2014.
Annual Improvements to PFRSs (2010-2012 cycle)
The Annual Improvements to PFRSs (2010-2012 cycle) contain non-urgent but necessary amendments to the following standards:
 PFRS 2, Share-based Payment - Definition of Vesting Condition
The amendment revised the definitions of vesting condition and market condition and added the definitions of performance condition and service condition to clarify various issues. This amendment shall be prospectively applied to share-based payment transactions for which the grant date is on or after July 1, 2014.

PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business Combination
The amendment clarifies that a contingent consideration that meets the definition of a financial instrument should be classified as a financial liability or as equity in accordance with PAS 32. Contingent consideration that is not classified as equity is subsequently measured at fair value through profit or loss whether or not it falls within the scope of PFRS 9 (or PAS 39, if PFRS 9 is not yet adopted). The amendment shall be prospectively applied to business combinations for which the acquisition date is on or after July 1, 2014. The Group shall consider this amendment for future business combinations.
 PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of the Total of the
Reportable Segments’ Assets to the Entity’s Assets
The amendments require entities to disclose the judgment made by management in aggregating two or more operating segments. This disclosure should include a brief description of the operating segments that have been aggregated in this way and the economic indicators that have been assessed in determining that the aggregated operating segments share similar economic characteristics. The amendments also clarify that an entity shall provide reconciliations of the total of the reportable segments’ assets to the entity’s assets if such amounts are regularly provided to the chief operating decision maker. These amendments are effective for annual periods beginning on or after July 1, 2014 and are applied retrospectively. The amendments affect disclosures only and have no impact on the Group’s financial position or performance.

PFRS 13, Fair Value Measurement - Short-term Receivables and Payables
The amendment clarifies that short-term receivables and payables with no stated interest rates can be held at invoice amounts when the effect of discounting is immaterial. The amendment has no impact on the Group’s financial position or performance.
 PAS 16, Property, Plant and Equipment - Revaluation Method - Proportionate Restatement of Accumulated
Depreciation
The amendment clarifies that, upon revaluation of an item of property, plant and equipment, the carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the following ways: a) The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. The accumulated depreciation at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses.
b) The accumulated depreciation is eliminated against the gross carrying amount of the asset.
The amendment is effective for annual periods beginning on or after July 1, 2014. The amendment shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual period. The amendment has no impact on the Group’s financial position or performance.
 PAS 24, Related Party Disclosures - Key Management Personnel
The amendments clarify that an entity is a related party of the reporting entity if the said entity, or any member of a group for which it is a part of, provides key management personnel services to the reporting entity or to the parent company of the reporting entity. The amendments also clarify that a reporting entity that obtains management personnel services from another entity (also referred to as management entity) is not required to disclose the compensation paid or payable by the management entity to its employees or directors. The reporting entity is required to disclose the amounts incurred for the key management personnel services provided by a separate management entity. The amendments are effective for annual periods beginning on or after July 1,
2014 and are applied retrospectively. The amendments affect disclosures only and have no impact on the
Group’s financial position or performance.
 PAS 38, Intangible Assets - Revaluation Method - Proportionate Restatement of Accumulated Amortization
The amendments clarify that, upon revaluation of an intangible asset, the carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the following ways:
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a) The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. The accumulated amortization at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses.
b) The accumulated amortization is eliminated against the gross carrying amount of the asset.
The amendments also clarify that the amount of the adjustment of the accumulated amortization should form part of the increase or decrease in the carrying amount accounted for in accordance with the standard.
The amendments are effective for annual periods beginning on or after July 1, 2014. The amendments shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual period. The amendments have no impact on the Group’s financial position or performance.
Annual Improvements to PFRSs (2011-2013 cycle)
The Annual Improvements to PFRSs (2011-2013 cycle) contain non-urgent but necessary amendments to the following standards:
 PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Meaning of ‘Effective PFRSs’
The amendment clarifies that an entity may choose to apply either a current standard or a new standard that is not yet mandatory, but that permits early application, provided either standard is applied consistently throughout the periods presented in the entity’s first PFRS financial statements. This amendment is not applicable to the
Group as it is not a first-time adopter of PFRS.
 PFRS 3, Business Combinations – Scope Exceptions for Joint Arrangements
The amendment clarifies that PFRS 3 does not apply to the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself. The amendment is effective for annual periods beginning on or after July 1, 2014 and is applied prospectively and has no significant impact on the Group’s financial position or performance.
 PFRS 13 , Fair Value Measurement - Portfolio Exception
The amendment clarifies that the portfolio exception in PFRS 13 can be applied to financial assets, financial liabilities and other contracts. The amendment is effective for annual periods beginning on or after July 1, 2014 and is applied prospectively. The amendment has no significant impact on the Group’s financial position or performance.
 PAS 40 , Investment Property
The amendment clarifies the interrelationship between PFRS 3 and PAS 40 when classifying property as investment property or owner-occupied property. The amendment stated that judgment is needed when determining whether the acquisition of investment property is the acquisition of an asset or a group of assets or a business combination within the scope of PFRS 3. This judgment is based on the guidance of PFRS 3. This amendment is effective for annual periods beginning on or after July 1, 2014 and is applied prospectively. The amendment has no significant impact on the Group’s financial position or performance.
Standard with No Mandatory Effective Date
 PFRS 9, Financial Instruments
PFRS 9, as issued, reflects the first and third phases of the project to replace PAS 39 and applies to the classification and measurement of financial assets and liabilities and hedge accounting, respectively. Work on the second phase, which relate to impairment of financial instruments, and the limited amendments to the classification and measurement model is still ongoing, with a view to replace PAS 39 in its entirety. PFRS 9 requires all financial assets to be measured at fair value at initial recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a business model that has the objective to hold the assets to collect the contractual cash flows and its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding. All other debt instruments are subsequently measured at fair value through profit or loss. All equity financial assets are measured at fair value either through other comprehensive income (OCI) or profit or loss.
Equity financial assets held for trading must be measured at fair value through profit or loss. For liabilities designated as at FVPL using the fair value option, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in OCI. The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change relating to the entity’s own credit risk in
OCI would create or enlarge an accounting mismatch in profit or loss. All other PAS 39 classification and measurement requirements for financial liabilities have been carried forward to PFRS 9, including the embedded derivative bifurcation rules and the criteria for using the FVO. The adoption of the first phase of PFRS 9 will
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a) The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. The accumulated amortization at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses.
b) The accumulated amortization is eliminated against the gross carrying amount of the asset.
The amendments also clarify that the amount of the adjustment of the accumulated amortization should form part of the increase or decrease in the carrying amount accounted for in accordance with the standard.
The amendments are effective for annual periods beginning on or after July 1, 2014. The amendments shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual period. The amendments have no impact on the Group’s financial position or performance.
Annual Improvements to PFRSs (2011-2013 cycle)
The Annual Improvements to PFRSs (2011-2013 cycle) contain non-urgent but necessary amendments to the following standards:
 PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Meaning of ‘Effective PFRSs’
The amendment clarifies that an entity may choose to apply either a current standard or a new standard that is not yet mandatory, but that permits early application, provided either standard is applied consistently throughout the periods presented in the entity’s first PFRS financial statements. This amendment is not applicable to the
Group as it is not a first-time adopter of PFRS.
 PFRS 3, Business Combinations – Scope Exceptions for Joint Arrangements
The amendment clarifies that PFRS 3 does not apply to the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself. The amendment is effective for annual periods beginning on or after July 1, 2014 and is applied prospectively and has no significant impact on the Group’s financial position or performance.
 PFRS 13 , Fair Value Measurement - Portfolio Exception
The amendment clarifies that the portfolio exception in PFRS 13 can be applied to financial assets, financial liabilities and other contracts. The amendment is effective for annual periods beginning on or after July 1, 2014 and is applied prospectively. The amendment has no significant impact on the Group’s financial position or performance.
 PAS 40 , Investment Property
The amendment clarifies the interrelationship between PFRS 3 and PAS 40 when classifying property as investment property or owner-occupied property. The amendment stated that judgment is needed when determining whether the acquisition of investment property is the acquisition of an asset or a group of assets or a business combination within the scope of PFRS 3. This judgment is based on the guidance of PFRS 3. This amendment is effective for annual periods beginning on or after July 1, 2014 and is applied prospectively. The amendment has no significant impact on the Group’s financial position or performance.
Standard with No Mandatory Effective Date
 PFRS 9, Financial Instruments
PFRS 9, as issued, reflects the first and third phases of the project to replace PAS 39 and applies to the classification and measurement of financial assets and liabilities and hedge accounting, respectively. Work on the second phase, which relate to impairment of financial instruments, and the limited amendments to the classification and measurement model is still ongoing, with a view to replace PAS 39 in its entirety. PFRS 9 requires all financial assets to be measured at fair value at initial recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a business model that has the objective to hold the assets to collect the contractual cash flows and its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding. All other debt instruments are subsequently measured at fair value through profit or loss. All equity financial assets are measured at fair value either through other comprehensive income (OCI) or profit or loss.
Equity financial assets held for trading must be measured at fair value through profit or loss. For liabilities designated as at FVPL using the fair value option, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in OCI. The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change relating to the entity’s own credit risk in
OCI would create or enlarge an accounting mismatch in profit or loss. All other PAS 39 classification and measurement requirements for financial liabilities have been carried forward to PFRS 9, including the embedded derivative bifurcation rules and the criteria for using the FVO. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but will potentially have no impact on the classification and measurement of financial liabilities.
On hedge accounting, PFRS 9 replaces the rules-based hedge accounting model of PAS 39 with a more principles-based approach. Changes include replacing the rules-based hedge effectiveness test with an objectives-based test that focuses on the economic relationship between the hedged item and the hedging instrument, and the effect of credit risk on that economic relationship; allowing risk components to be designated as the hedged item, not only for financial items, but also for non-financial items, provided that the risk component is separately identifiable and reliably measurable; and allowing the time value of an option, the forward element of a forward contract and any foreign currency basis spread to be excluded from the designation of a financial instrument as the hedging instrument and accounted for as costs of hedging. PFRS 9 also requires more extensive disclosures for hedge accounting.
PFRS 9 currently has no mandatory effective date. PFRS 9 may be applied before the completion of the limited amendments to the classification and measurement model and impairment methodology. The Group will not adopt the standard before the completion of the limited amendments and the second phase of the project.
The Group conducted an impact evaluation of the early adoption of PFRS 9 based on the December 31, 2013 balances, and based on the results of this study, the Group will not early adopt PFRS 9 for the current year. The
Group does not expect a significant impact on its consolidated financial statements based on the evaluation of existing classification and measurement of financial assets and liabilities.
Interpretation with Deferred Effective Date
 Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate
This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The SEC and the Financial Reporting Standards
Council (FRSC) have deferred the effectivity of this interpretation until the final revenue standard is issued by the
International Accounting Standards Board (IASB) and an evaluation of the requirements of the final revenue standard against the practices of the Philippine real estate industry is completed. This interpretation is not relevant to the Group since the Group does not engage in the construction of real estate directly or indirectly through subcontractor.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from dates of acquisition and that are subject to an insignificant risk of change in value.
Short-term Cash Investments
Short term cash investments are short-term placements with maturities of more than three months but less than one year from the date of acquisition. These earn interest at the respective short-term investment rates.
Financial Assets and Financial Liabilities
Date of recognition
The Group recognizes a financial asset or a financial liability on the consolidated statement of financial position when it becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the settlement date.
Initial recognition of financial instruments
All financial assets are initially recognized at fair value. Except for financial assets at fair value through profit or loss
(FVPL), the initial measurement of financial assets includes transaction costs. The Group classifies its financial assets in the following categories: financial assets at FVPL, held-to-maturity (HTM) investments, AFS financial assets and loans and receivables. The Group classifies its financial liabilities as either financial liabilities at FVPL or other financial liabilities. The classification depends on the purpose for which the investments were acquired and whether these are quoted in an active market. Management determines the classification of its investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.
Financial instruments are classified as liability or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a financial liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity, net of any related income tax benefits.
Determination of fair value
The fair value for financial instruments traded in active markets at the reporting date is based on its quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and ask prices are not available, the price of the most recent transaction
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provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation methodologies. Valuation methodologies include net present value techniques, comparison to similar instruments for which market observable prices exist, option pricing models, and other relevant valuation models.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
 Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
 Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly
 Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
Day 1 profit
For transactions other than those related to customers’ guaranty deposits and other deposits, where the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instruments or based on a valuation technique whose variables include only data from observable market, the
Group recognizes the difference between the transaction price and fair value (a ‘Day 1’ profit) in profit or loss under
“Other income” unless it qualifies for recognition as some other type of asset or liability. In cases where use is made of data which is not observable, the difference between the transaction price and model value is only recognized in profit or loss when the inputs become observable or when the instrument is derecognized. For each transaction, the
Group determines the appropriate method of recognizing the ‘Day 1’ profit amount.
Financial assets and financial liabilities at FVPL
Financial assets and financial liabilities at FVPL include financial assets and financial liabilities held for trading and financial assets and financial liabilities designated upon initial recognition as at FVPL.
Financial assets and financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognized in profit or loss.
Financial assets and financial liabilities may be designated at initial recognition as at FVPL if the following criteria are met:
 The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on a different basis; or
 The assets are part of a group of financial assets which are managed and its performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or
 The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.
Embedded derivatives
An embedded derivative is separated from the host contract and accounted for as a derivative if all of the following conditions are met: a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid or combined instrument is not recognized at FVPL. Embedded derivatives are measured at fair value with fair value changes being reported through profit or loss, and are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. The
Group determines whether a modification in the cash flows is significant by considering the extent to which the expected future cash flows associated with the embedded derivative, the host contract, or both have changed and whether the change is significant relative to the previously expected cash flows from the contract.
The Group has certain closely and clearly related derivatives that are embedded in the host contract (such as longterm debt) which does not require bifurcation.
HTM investments
HTM investments are quoted nonderivative financial assets with fixed or determinable payments and fixed maturities for which the Group’s management has the positive intention and ability to hold to maturity. Where the Group sells other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified as AFS financial assets. After initial measurement, these investments are measured at amortized cost using the effective interest rate method, less impairment in value. Amortized cost is calculated by taking into account any discount or
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provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation methodologies. Valuation methodologies include net present value techniques, comparison to similar instruments for which market observable prices exist, option pricing models, and other relevant valuation models.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
 Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
 Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly
 Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
Day 1 profit
For transactions other than those related to customers’ guaranty deposits and other deposits, where the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instruments or based on a valuation technique whose variables include only data from observable market, the
Group recognizes the difference between the transaction price and fair value (a ‘Day 1’ profit) in profit or loss under
“Other income” unless it qualifies for recognition as some other type of asset or liability. In cases where use is made of data which is not observable, the difference between the transaction price and model value is only recognized in profit or loss when the inputs become observable or when the instrument is derecognized. For each transaction, the
Group determines the appropriate method of recognizing the ‘Day 1’ profit amount.
Financial assets and financial liabilities at FVPL
Financial assets and financial liabilities at FVPL include financial assets and financial liabilities held for trading and financial assets and financial liabilities designated upon initial recognition as at FVPL.
Financial assets and financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognized in profit or loss.
Financial assets and financial liabilities may be designated at initial recognition as at FVPL if the following criteria are met:
 The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on a different basis; or
 The assets are part of a group of financial assets which are managed and its performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or
 The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.
Embedded derivatives
An embedded derivative is separated from the host contract and accounted for as a derivative if all of the following conditions are met: a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid or combined instrument is not recognized at FVPL. Embedded derivatives are measured at fair value with fair value changes being reported through profit or loss, and are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. The
Group determines whether a modification in the cash flows is significant by considering the extent to which the expected future cash flows associated with the embedded derivative, the host contract, or both have changed and whether the change is significant relative to the previously expected cash flows from the contract.
The Group has certain closely and clearly related derivatives that are embedded in the host contract (such as longterm debt) which does not require bifurcation.
HTM investments
HTM investments are quoted nonderivative financial assets with fixed or determinable payments and fixed maturities for which the Group’s management has the positive intention and ability to hold to maturity. Where the Group sells other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified as AFS financial assets. After initial measurement, these investments are measured at amortized cost using the effective interest rate method, less impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included in
“Interest income” account in profit or loss.
Gains and losses are recognized in profit or loss when the HTM investments are derecognized or impaired, as well as through the amortization process.
As of December 31, 2013 and 2012, no financial assets have been classified as HTM investments.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments and fixed maturities that are not quoted in an active market. These are not entered into with the intention of immediate or short-term resale and are not designated as AFS financial assets or financial assets at FVPL. These are included in current assets if maturity is within twelve months from the reporting date otherwise, these are classified as noncurrent assets.
After initial measurement, loans and receivables are subsequently measured at amortized cost using the effective interest rate method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included in “Interest income” in profit or loss. The losses arising from impairment of such loans and receivables are recognized as “Provision for probable losses” in profit or loss.
This accounting policy applies primarily to the Group’s cash and cash equivalents, short-term cash investments, receivables, advances to TIEZA and deposits.
AFS financial assets
AFS financial assets are those which are designated as such or do not qualify to be classified as financial assets at
FVPL, HTM investments or loans and receivables. These are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions. These include equity investments, money market papers and other debt instruments. After initial measurement, AFS financial assets are subsequently measured at fair value. The effective yield component of AFS debt securities, as well as the impact of restatement on foreign currency-denominated AFS debt securities, is reported in profit or loss. The unrealized gains and losses arising from the fair valuation of AFS financial assets are excluded net of tax from net income and are reported as “Unrealized gain (loss) on available-for-sale financial assets” under OCI.
When the investment is disposed of, the cumulative gain or loss previously recognized under OCI is recognized as
“Gain (loss) on disposal of available-for-sale financial assets” in profit or loss. Where the Group holds more than one investment in the same security, these are deemed to be disposed of on a first-in first-out basis. Interest earned on holding AFS financial assets are reported as interest income using the effective interest rate. Dividends earned on holding AFS financial assets are recognized under the “Other income” account when the right to receive payment has been established. The losses arising from impairment of such investments are recognized as “Provisions for probable losses” in profit or loss.
Fair value of AFS financial assets which cannot be measured reliably because of lack of reliable estimates of future cash flows and discount rates necessary to calculate the fair value of unquoted equity instruments, are carried at cost.
The Group’s AFS financial assets are presented as noncurrent in the consolidated statements of financial position.
The details of the Group’s AFS financial assets are disclosed in Note 11.
Other financial liabilities
Issued financial instruments or their components, which are not designated as at FVPL are classified as other financial liabilities where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of its own equity shares. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount, after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issuance.
After initial measurement, other financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any discount or premium on the issue and fees that are an integral part of the effective interest rate. Any effects of restatement of foreign currency-denominated liabilities are recognized in profit or loss.
This accounting policy applies primarily to the Group’s long-term debt, accounts and other payables, customers’ guaranty deposits and other deposits under other noncurrent liabilities, service concession obligation, payable to related parties and other payables that meet the above definition (other than liabilities covered by other accounting standards, such as pension liabilities and income tax payable).
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Derecognition of Financial Assets and Liabilities
Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of financial assets) is derecognized when:
1.
the right to receive cash flows from the asset has expired;
2.
the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or,
3.
the Group has transferred its right to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained the risks and rewards of the asset but has transferred the control of the asset.
Where the Group has transferred its right to receive cash flows from an asset or has entered into a “pass-through” arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged, cancelled, or has expired.
Where an existing financial liability is replaced by another financial liability from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.
Impairment of Financial Assets
The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Objective evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic condition that correlate with default. For the Group’s receivables from customers, evidence of impairment may also include noncollection of the Group’s trade receivables, which remain unpaid after thirty days from bill generation. The Group shall provide the customer with not less than seven days’ prior written notice before any disconnection.
Loans and receivables
For loans and receivables carried at amortized cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assessed for impairment. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognized, are not included in a collective assessment for impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). The carrying amount of the asset is reduced through use of an allowance account and the amount of loss is charged to profit or loss. Interest income continues to be recognized based on the original effective interest rate of the asset. Receivables, together with the associated allowance accounts, are written off when there is no realistic prospect of future recovery.
If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of such credit risk characteristics as industry, customer type, customer location, past-due status and term. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is
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Derecognition of Financial Assets and Liabilities
Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of financial assets) is derecognized when:
1.
the right to receive cash flows from the asset has expired;
2.
the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or,
3.
the Group has transferred its right to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained the risks and rewards of the asset but has transferred the control of the asset.
Where the Group has transferred its right to receive cash flows from an asset or has entered into a “pass-through” arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged, cancelled, or has expired.
Where an existing financial liability is replaced by another financial liability from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.
Impairment of Financial Assets
The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Objective evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic condition that correlate with default. For the Group’s receivables from customers, evidence of impairment may also include noncollection of the Group’s trade receivables, which remain unpaid after thirty days from bill generation. The Group shall provide the customer with not less than seven days’ prior written notice before any disconnection.
Loans and receivables
For loans and receivables carried at amortized cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assessed for impairment. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognized, are not included in a collective assessment for impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). The carrying amount of the asset is reduced through use of an allowance account and the amount of loss is charged to profit or loss. Interest income continues to be recognized based on the original effective interest rate of the asset. Receivables, together with the associated allowance accounts, are written off when there is no realistic prospect of future recovery.
If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of such credit risk characteristics as industry, customer type, customer location, past-due status and term. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience.
AFS financial assets
For AFS financial assets, the Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired.
In the case of equity investments classified as AFS financial assets, this would include a significant or prolonged decline in the fair value of the investments below cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss - is removed from OCI and recognized in profit or loss.
Impairment losses on equity investments are not reversed through profit or loss. Increases in fair value after impairment are recognized directly in OCI.
In the case of debt instruments classified as AFS financial assets, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of “Interest income” in profit or loss. If, in subsequent year, the fair value of a debt instrument increased and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through profit or loss.
Financial Guarantee Contracts
The Parent Company gives financial guarantees to its subsidiaries. Financial guarantees are initially recognized at fair value, and the initial fair value is amortized over the life of the financial guarantee. The guarantee liability is subsequently carried at the higher of this amortized amount and the present value of any expected payment (when a payment under the guaranty has become probable).
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Materials and Supplies
Materials and supplies are valued at the lower of cost or net realizable value (NRV). Cost is determined using the moving average method.
Prepaid expenses
Prepaid expenses are carried at cost less the amortized portion. These typically include prepayments for business taxes, insurance and employee health care expenses and other benefits.
Value-Added Tax (VAT)
The input VAT pertains to the 12% indirect tax paid by the Group in the course of the Group’s trade or business on local purchase of goods or services.
Output VAT pertains to the 12% tax due on the local sale of goods and services by the Group.
If at the end of any taxable month, the output VAT exceeds the input VAT, the outstanding balance is included under
“Accounts and other payables” account. If the input VAT exceeds the output VAT, the excess shall be carried over to the succeeding months and included under “Other current asset” account.
Property and Equipment
Property and equipment, except land, are stated at cost less accumulated depreciation and amortization and any impairment in value. Land is stated at cost less any impairment in value.
The initial cost of property and equipment comprises its purchase price, including import duties, taxes and any directly attributable costs of bringing the property and equipment to its working condition and location for its intended use, including capitalized borrowing costs incurred during the construction period. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance, are normally charged to operations in the period in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional cost of the related property and equipment.
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Depreciation and amortization of property and equipment commences once the property and equipment are available for use and are calculated on a straight-line basis over the estimated useful lives (EUL) of the property and equipment as follows:
Office furniture and equipment
Transportation equipment
3 to 5 years
5 years
Leasehold improvements are amortized over 5 years or the term of the lease, whichever is shorter.
Plant and technical equipment are depreciated over 5 years or the term of the related management contract, whichever is shorter.
The EUL and depreciation and amortization method are reviewed periodically to ensure that the period and method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment.
When property and equipment is retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization and accumulated impairment, if any, are removed from the accounts and any resulting gain or loss is credited to or charged against current operations.
Service Concession Assets and Obligations
The Group accounts for its concession arrangements with MWSS, POL, TIEZA and CDC under the Intangible Asset model as it receives the right (license) to charge users of public service. Under the Group’s concession agreements, the Group is granted the sole and exclusive right and discretion during the concession period to manage, occupy, operate, repair, maintain, decommission and refurbish the identified facilities required to provide water services. The legal title to these assets shall remain with MWSS, POL, TIEZA and CDC at the end of the concession period.
On the other hand, the concession arrangement with the Provincial Government of Cebu is accounted for under the
Financial Asset model as it has an unconditional contractual right to receive cash or other financial asset for its construction services from or at the direction of the grantor. Under the concession arrangements, CMWD is awarded the right to deliver Bulk Water supply to the grantor for a specific period of time under the concession period.
The “Service concession assets” (SCA) pertain to the fair value of the service concession obligations at drawdown date, construction costs related to the rehabilitation works performed by the Group and other local component costs and cost overruns paid by the Group. These are amortized using the straight-line method over the life of the related concession.
In addition, the Parent Company, BIWC, CWC and LAWC recognize and measure revenue from rehabilitation works in accordance with PAS 11, Construction Contracts , and PAS 18, Revenue , for the services it performs. Recognition of revenue is by reference to the ‘stage of completion method’, also known as the ‘percentage of completion method’ as provided under PAS 11 .
Contract revenue and costs from rehabilitation works are recognized as “Revenue from rehabilitation works” and “Cost of rehabilitation works” in profit or loss in the period in which the work is performed.
Investments in Subsidiaries
The Group determined that it has control over its subsidiaries (see Note 1) by considering, among others, its power over the investee, exposure or rights to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect its returns. The following were also considered:
 The contractual arrangement with the other vote holders of the investee
 Rights arising from other contractual agreements
 The Group’s voting rights and potential voting rights
Investments in Associates and Jointly Controlled Entities
Investments in associates and jointly controlled entities are accounted for under the equity method. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, and a jointly controlled entity is a joint venture that involves the establishment of a separate entity in which each venturer has an interest.
An investment in an associate or jointly controlled entities is accounted for using the equity method from the day it becomes an associate or joint venture. On acquisition of investment, the excess of the cost of investment over the investor’s share in the net fair value of the investee’s identifiable assets, liabilities and contingent liabilities is accounted for as goodwill and included in the carrying amount of the investment and neither amortized nor individually
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Depreciation and amortization of property and equipment commences once the property and equipment are available for use and are calculated on a straight-line basis over the estimated useful lives (EUL) of the property and equipment as follows:
Office furniture and equipment
Transportation equipment
3 to 5 years
5 years
Leasehold improvements are amortized over 5 years or the term of the lease, whichever is shorter.
Plant and technical equipment are depreciated over 5 years or the term of the related management contract, whichever is shorter.
The EUL and depreciation and amortization method are reviewed periodically to ensure that the period and method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment.
When property and equipment is retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization and accumulated impairment, if any, are removed from the accounts and any resulting gain or loss is credited to or charged against current operations.
Service Concession Assets and Obligations
The Group accounts for its concession arrangements with MWSS, POL, TIEZA and CDC under the Intangible Asset model as it receives the right (license) to charge users of public service. Under the Group’s concession agreements, the Group is granted the sole and exclusive right and discretion during the concession period to manage, occupy, operate, repair, maintain, decommission and refurbish the identified facilities required to provide water services. The legal title to these assets shall remain with MWSS, POL, TIEZA and CDC at the end of the concession period.
On the other hand, the concession arrangement with the Provincial Government of Cebu is accounted for under the
Financial Asset model as it has an unconditional contractual right to receive cash or other financial asset for its construction services from or at the direction of the grantor. Under the concession arrangements, CMWD is awarded the right to deliver Bulk Water supply to the grantor for a specific period of time under the concession period.
The “Service concession assets” (SCA) pertain to the fair value of the service concession obligations at drawdown date, construction costs related to the rehabilitation works performed by the Group and other local component costs and cost overruns paid by the Group. These are amortized using the straight-line method over the life of the related concession.
In addition, the Parent Company, BIWC, CWC and LAWC recognize and measure revenue from rehabilitation works in accordance with PAS 11, Construction Contracts , and PAS 18, Revenue , for the services it performs. Recognition of revenue is by reference to the ‘stage of completion method’, also known as the ‘percentage of completion method’ as provided under PAS 11 .
Contract revenue and costs from rehabilitation works are recognized as “Revenue from rehabilitation works” and “Cost of rehabilitation works” in profit or loss in the period in which the work is performed.
Investments in Subsidiaries
The Group determined that it has control over its subsidiaries (see Note 1) by considering, among others, its power over the investee, exposure or rights to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect its returns. The following were also considered:
 The contractual arrangement with the other vote holders of the investee
 Rights arising from other contractual agreements
 The Group’s voting rights and potential voting rights
Investments in Associates and Jointly Controlled Entities
Investments in associates and jointly controlled entities are accounted for under the equity method. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, and a jointly controlled entity is a joint venture that involves the establishment of a separate entity in which each venturer has an interest.
An investment in an associate or jointly controlled entities is accounted for using the equity method from the day it becomes an associate or joint venture. On acquisition of investment, the excess of the cost of investment over the investor’s share in the net fair value of the investee’s identifiable assets, liabilities and contingent liabilities is accounted for as goodwill and included in the carrying amount of the investment and neither amortized nor individually tested for impairment. Any excess of the investor’s share of the net fair value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost of the investment is excluded from the carrying amount of the investment, and is instead included as income in the determination of the share in the earnings of the investees.
Under the equity method, investments in associates and jointly controlled entities are carried in the consolidated statement of financial position at cost plus post-acquisition changes in the Group’s share in the net assets of the investees, less any impairment in value. The Group’s share in the investee’s post-acquisition profits or losses is recognized in profit or loss, and its share of post-acquisition movements in the investee’s equity reserves is recognized directly in equity. Profits and losses resulting from transactions between the Group and the investee companies are eliminated to the extent of the interest in the investee companies and to the extent that for unrealized losses, there is no evidence of impairment of the asset transferred. Dividends received are treated as a reduction of the carrying value of the investment.
The Group discontinues applying the equity method when its investment in an investee company is reduced to zero.
Accordingly, additional losses are not recognized unless the Group has guaranteed certain obligations of the investee company. When the investee company subsequently reports profits, the Group resumes recognizing its share of the profits only after its share of the profits equals the share of net losses not recognized during the period the equity method was suspended.
The reporting dates of the investee companies and the Group are identical and the investee companies’ accounting policies conform to those used by the Group for like transactions and events in similar circumstances.
Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any noncontrolling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.
Acquisition costs are expensed as incurred.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss included under
“Remeasurement gain (loss) arising from business combination.”
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date.
Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognized in accordance with PAS 39 either in profit or loss or as a change to OCI. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.
If the initial accounting for a business combination can be determined only provisionally by the end of the period in which the combination is effected because either the fair values to be assigned to the acquiree’s identifiable assets, liabilities or contingent liabilities or the cost of the combination can be determined only provisionally, the acquirer shall account for the combination using those provisional values. The acquirer shall recognize any adjustments to those provisional values as a result of completing the initial accounting within twelve months of the acquisition date as follows: (i) the carrying amount of the identifiable asset, liability or contingent liability that is recognized or adjusted as a result of completing the initial accounting shall be calculated as if its fair value at the acquisition date had been recognized from that date; (ii) goodwill or any gain recognized shall be adjusted by an amount equal to the adjustment to the fair value at the acquisition date of the identifiable asset, liability or contingent liability being recognized or adjusted; and (iii) comparative information presented for the periods before the initial accounting for the combination is complete shall be presented as if the initial accounting has been completed from the acquisition date.
Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss.
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Following initial recognition, goodwill is measured at cost less any accumulated impairment loss. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For purposes of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units (CGUs), or groups of CGUs, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the
Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is allocated should:
 represent the lowest level within the Group at which the goodwill is monitored for internal management purposes; and
 not be larger than an operating segment determined in accordance with PFRS 8, Operating Segments .
Impairment is determined by assessing the recoverable amount of the CGU (or group of CGUs), to which the goodwill relates. Where the recoverable amount of the CGU (or group of CGUs) is less than the carrying amount, an impairment loss is recognized. Where goodwill forms part of a CGU (or group of CGUs) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in these circumstances is measured based on the relative values of the operation disposed of and the portion of the CGU retained. If the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the acquirer shall recognize immediately in profit or loss any excess remaining after reassessment.
Impairment of Non-financial Assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is calculated as the higher of the asset’s or CGU’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. In determining fair value less cost to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other fair value indicators. Impairment losses of continuing operations are recognized in profit or loss in those expense categories consistent with the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as revaluation increase. After such a reversal, the depreciation and amortization charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
Investments in associates and jointly controlled entities
After application of the equity method, the Group determines whether it is necessary to recognize any additional impairment loss with respect to the Group’s net investment in the investee company. The Group determines at each reporting date whether there is any objective evidence that the investment in the investee company is impaired. If this is the case, the Group calculates the amount of impairment as being the difference between the recoverable amount of the investee company and the carrying cost and recognizes the amount in profit or loss.
Impairment of goodwill
For assessing impairment of goodwill, a test for impairment is performed annually and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. Where the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
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Following initial recognition, goodwill is measured at cost less any accumulated impairment loss. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For purposes of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units (CGUs), or groups of CGUs, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the
Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is allocated should:
 represent the lowest level within the Group at which the goodwill is monitored for internal management purposes; and
 not be larger than an operating segment determined in accordance with PFRS 8, Operating Segments .
Impairment is determined by assessing the recoverable amount of the CGU (or group of CGUs), to which the goodwill relates. Where the recoverable amount of the CGU (or group of CGUs) is less than the carrying amount, an impairment loss is recognized. Where goodwill forms part of a CGU (or group of CGUs) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in these circumstances is measured based on the relative values of the operation disposed of and the portion of the CGU retained. If the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the acquirer shall recognize immediately in profit or loss any excess remaining after reassessment.
Impairment of Non-financial Assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is calculated as the higher of the asset’s or CGU’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. In determining fair value less cost to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other fair value indicators. Impairment losses of continuing operations are recognized in profit or loss in those expense categories consistent with the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as revaluation increase. After such a reversal, the depreciation and amortization charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
Investments in associates and jointly controlled entities
After application of the equity method, the Group determines whether it is necessary to recognize any additional impairment loss with respect to the Group’s net investment in the investee company. The Group determines at each reporting date whether there is any objective evidence that the investment in the investee company is impaired. If this is the case, the Group calculates the amount of impairment as being the difference between the recoverable amount of the investee company and the carrying cost and recognizes the amount in profit or loss.
Impairment of goodwill
For assessing impairment of goodwill, a test for impairment is performed annually and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. Where the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.
A reassessment is made after the inception of the lease only if one of the following applies:
(a) There is a change in contractual terms, other than a renewal of or extension of the arrangement;
(b) A renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term;
(c) There is a change in the determination of whether fulfillment is dependent on a specified asset; or
(d) There is a substantial change to the asset.
Where reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b).
A lease where the lessor retains substantially all the risks and benefits of ownership of the asset is classified as an operating lease.
Revenue Recognition
Water and Sewer Revenue
Water and sewer revenue are recognized when the related water and sewerage services are rendered. Water and sewerage are billed every month according to the bill cycles of the customers. As a result of bill cycle cut-off, monthly service revenue earned but not yet billed at end of the month are estimated and accrued. These estimates are based on historical consumption of the customers. Twenty percent (20%) of water revenue is recognized by the Parent
Company as environmental charges with the rationalization of the sewerage and environmental charges as approved in the 2008 rate rebasing.
Interest Income
Interest income is recognized as it accrues, taking into account the effective yield of the assets.
Revenue from Rehabilitation Works
Revenue from rehabilitation works is recognized and measured by the Group in accordance with PAS 11 and PAS 18 for the service. This includes revenue from rehabilitation works which is equivalent to the related cost for the rehabilitation works covered by the service concession arrangements which is recognized as part of SCA.
When the Group provides construction or upgrade services, the consideration received or receivable is recognized at fair value. The Group accounts for revenue and costs relating to operation services in accordance with PAS 18 under the captions “Revenue from rehabilitation works” and Cost of rehabilitation works” in the Consolidated Statements of
Comprehensive Income.
Management Contracts
Management contracts are recognized using the percentage of completion method of accounting, measured principally on the basis of the physical proportion of the contract work to the estimated completion of a project.
Other operating income
Other customer related fees such as connection, reconnection and disconnection fees are recognized when these services have been rendered.
The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements.
Cost of Services and Operating Expenses
Cost of services and operating expenses are recognized as they are incurred.
Foreign Currency Denominated Transactions
Foreign exchange differentials arising from foreign currency transactions are credited or charged to operations. As approved by the MWSS Board of Trustees (BOT) under Amendment No. 1 of the Agreement, the following will be recovered through billings to customers: a.
Restatement of foreign currency-denominated loans; b.
Excess of actual concession fee payment over the amounts of concession fees translated using the base exchange rate assumed in the business plan approved every rate rebasing exercise. The current base exchange
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c.
Excess of actual interest payment translated at exchange spot rate on settlement date over the amount of interest translated at drawdown rate; and d.
Excess of actual payment of other financing charges relating to foreign currency-denominated loans translated at exchange spot rate on settlement date over the amount of other financing charges translated at drawdown rate.
The functional and presentation currency of the Parent Company and its Philippine subsidiaries is the Philippine Peso statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are recognized in OCI until the disposal of the net investment, at which time they are recognized in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also dealt with in equity. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of initial transaction.
Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was determined.
The functional currency of MWAP, MWSAH, TDWH and KDWH is the Singapore Dollar (SGD). As at the reporting date, the assets and liabilities of these subsidiaries are translated into the presentation currency of the Group at the rate of exchange ruling at the reporting date and their profit and loss accounts are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are recognized in OCI and reported as “Cumulative translation adjustment”, a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognized in OCI relating to that particular foreign operation shall be recognized in profit or loss.
In view of the automatic reimbursement mechanism, the Group recognizes deferred FCDA (included as part of “Other noncurrent assets” or “Other noncurrent liabilities” in the consolidated statement of financial position) for both the realized and unrealized foreign exchange gains and losses. Other water revenue-FCDA is credited (debited) upon recovery (refund) of realized foreign exchange losses (gains). The write-off or reversal of the deferred FCDA pertaining to concession fees will be made upon determination of the rebased foreign exchange rate, which is assumed in the business plan approved by MWSS-RO during the latest Rate Rebasing exercise, unless indication of impairment of the deferred FCDA would be evident at an earlier date.
Borrowing Costs
Borrowing costs that are directly attributable to the acquisition, development, improvement and construction of fixed assets (including costs incurred in connection with rehabilitation works) that necessarily takes a substantial period of time to get ready for its intended use are recorded as SCA are capitalized as part of the cost of fixed assets. All other borrowing costs are expensed in the period they occur.
The interest capitalized is calculated using the Group’s weighted average cost of borrowings after adjusting for borrowing associated with specific developments. Where borrowings are associated with specific developments, the amounts capitalized is the gross incurred on those borrowings less any investment income arising on their temporary investment.
The capitalization of those borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Capitalization of borrowing costs ceases when substantially all activities necessary in preparing the related assets for their intended use are complete. Borrowing costs include interest charges and other related financing charges incurred in connection with the borrowing of funds. Premiums and/or discounts on long-term debt are included in the “Long-term debt” account in the consolidated statement of financial position and are amortized using the effective interest rate method.
Provisions
A provision is recognized when the Group has: (a) a present obligation (legal or constructive) as a result of a past event; (b) it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense. Where the Group expects a provision to be reimbursed, the reimbursement is not recognized as a separate asset but only when the reimbursement is virtually certain. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but disclosed when an inflow of economic benefits is probable.
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c.
Excess of actual interest payment translated at exchange spot rate on settlement date over the amount of interest translated at drawdown rate; and d.
Excess of actual payment of other financing charges relating to foreign currency-denominated loans translated at exchange spot rate on settlement date over the amount of other financing charges translated at drawdown rate.
The functional and presentation currency of the Parent Company and its Philippine subsidiaries is the Philippine Peso statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are recognized in OCI until the disposal of the net investment, at which time they are recognized in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also dealt with in equity. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of initial transaction.
Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was determined.
The functional currency of MWAP, MWSAH, TDWH and KDWH is the Singapore Dollar (SGD). As at the reporting date, the assets and liabilities of these subsidiaries are translated into the presentation currency of the Group at the rate of exchange ruling at the reporting date and their profit and loss accounts are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are recognized in OCI and reported as “Cumulative translation adjustment”, a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognized in OCI relating to that particular foreign operation shall be recognized in profit or loss.
In view of the automatic reimbursement mechanism, the Group recognizes deferred FCDA (included as part of “Other noncurrent assets” or “Other noncurrent liabilities” in the consolidated statement of financial position) for both the realized and unrealized foreign exchange gains and losses. Other water revenue-FCDA is credited (debited) upon recovery (refund) of realized foreign exchange losses (gains). The write-off or reversal of the deferred FCDA pertaining to concession fees will be made upon determination of the rebased foreign exchange rate, which is assumed in the business plan approved by MWSS-RO during the latest Rate Rebasing exercise, unless indication of impairment of the deferred FCDA would be evident at an earlier date.
Borrowing Costs
Borrowing costs that are directly attributable to the acquisition, development, improvement and construction of fixed assets (including costs incurred in connection with rehabilitation works) that necessarily takes a substantial period of time to get ready for its intended use are recorded as SCA are capitalized as part of the cost of fixed assets. All other borrowing costs are expensed in the period they occur.
The interest capitalized is calculated using the Group’s weighted average cost of borrowings after adjusting for borrowing associated with specific developments. Where borrowings are associated with specific developments, the amounts capitalized is the gross incurred on those borrowings less any investment income arising on their temporary investment.
The capitalization of those borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Capitalization of borrowing costs ceases when substantially all activities necessary in preparing the related assets for their intended use are complete. Borrowing costs include interest charges and other related financing charges incurred in connection with the borrowing of funds. Premiums and/or discounts on long-term debt are included in the “Long-term debt” account in the consolidated statement of financial position and are amortized using the effective interest rate method.
Provisions
A provision is recognized when the Group has: (a) a present obligation (legal or constructive) as a result of a past event; (b) it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense. Where the Group expects a provision to be reimbursed, the reimbursement is not recognized as a separate asset but only when the reimbursement is virtually certain. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but disclosed when an inflow of economic benefits is probable.
Defined benefit plan
The net defined benefit liability or asset is the aggregate of the present value of the defined benefit obligation at the end of the reporting period reduced by the fair value of plan assets (if any), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.
The cost of providing benefits under the defined benefit plans is actuarially determined using the projected unit credit method.
Defined benefit costs comprise the following: a) Service cost b) Net interest on the net defined benefit liability or asset c) Remeasurements of net defined benefit liability or asset
Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by independent qualified actuaries.
Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability or asset that arises from the passage of time which is determined by applying the discount rate based on government bonds to the net defined benefit liability or asset.
Net interest on the net defined benefit liability or asset is recognized as expense or income in consolidated statement of income.
Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in other comprehensive income in the period in which they arise. Remeasurements are not reclassified to profit or loss in subsequent periods.
Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance policies. Plan assets are not available to the creditors of the Group, nor can they be paid directly to the Group. The fair value of plan assets is based on market price information. When no market price is available, the fair value of plan assets is estimated by discounting expected future cash flows using a discount rate that reflects both the risk associated with the plan assets and the maturity or expected disposal date of those assets (or, if they have no maturity, the expected period until the settlement of the related obligations). If the fair value of the plan assets is higher than the present value of the defined benefit obligation, the measurement of the resulting defined benefit asset is limited to the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.
The Group’s right to be reimbursed of some or all of the expenditure required to settle a defined benefit obligation is recognized as a separate asset at fair value when and only when reimbursement is virtually certain.
Termination benefit
Termination benefits are employee benefits provided in exchange for the termination of an employee’s employment as a result of either an entity’s decision to terminate an employee’s employment before the normal retirement date or an employee’s decision to accept an offer of benefits in exchange for the termination of employment.
A liability and expense for a termination benefit is recognized at the earlier of when the entity can no longer withdraw the offer of those benefits and when the entity recognizes related restructuring costs. Initial recognition and subsequent changes to termination benefits are measured in accordance with the nature of the employee benefit, as either post-employment benefits, short-term employee benefits, or other long-term employee benefits.
Employee leave entitlement
Employee entitlements to annual leave are recognized as a liability when they are accrued to the employees.
The undiscounted liability for leave expected to be settled wholly before twelve months after the end of the annual reporting period is recognized for services rendered by employees up to the end of the reporting period.
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Share-Based Payment
Employee share purchase plans
The Parent Company has an employee stock ownership plan (ESOWN) which allows the grantees to purchase the
Company’s shares at a discounted price. The Parent Company recognizes stock compensation expense over the holding period. The Parent Company treats its ESOWN plan as option exercisable within a given period. These are accounted for similar to the PFRS 2 options. Dividends paid on the awards that have vested are deducted from equity and those paid on awards that are unvested are charged to profit or loss. For the unsubscribed shares where the employees still have the option to subscribe in the future, these are accounted for as options.
Equity
When the shares are sold at premium, the difference between the proceeds at the par value is credited to “Additional paid-in capital” account. Direct costs incurred related to equity issuance are chargeable to “Additional paid-in capital” account. If additional paid-in capital is not sufficient, the excess is charged against retained earnings. When the
Group issues more than one class of stock, a separate account is maintained for each class of stock and the number of shares issued.
Subscriptions receivable pertains to the uncollected portion of the subscribed shares.
Retained earnings represent accumulated earnings of the Group less dividends declared.
Own equity instruments which are reacquired (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognized in additional paid-in capital. Voting rights related to treasury shares are nullified for the Group and no dividends are allocated to them respectively. When the shares are retired, the capital stock account is reduced by its par value and the excess of cost over par value upon retirement is debited to additional paid-in capital to the extent of the specific or average additional paid-in capital when the shares were issued and to retained earnings for the remaining balance.
Other reserves pertain to gain from sale of investments in a subsidiary by the Parent Company that did not result to a loss of control.
Income Tax
Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that have been enacted or substantively enacted as of the reporting date.
Deferred tax
Deferred tax is provided, using the liability method, for all temporary differences, with certain exceptions, at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences with certain exceptions. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable income will be available against which the deferred tax assets can be used or when there are sufficient taxable temporary differences which are expected to reverse in the same period as the expected reversal of the deductible temporary differences.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable income will allow all or part of the deferred tax assets to be recovered.
Deferred tax assets and liabilities are measured at the tax rate that is expected to apply in the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted as of the reporting date.
Deferred tax assets and liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
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Share-Based Payment
Employee share purchase plans
The Parent Company has an employee stock ownership plan (ESOWN) which allows the grantees to purchase the
Company’s shares at a discounted price. The Parent Company recognizes stock compensation expense over the holding period. The Parent Company treats its ESOWN plan as option exercisable within a given period. These are accounted for similar to the PFRS 2 options. Dividends paid on the awards that have vested are deducted from equity and those paid on awards that are unvested are charged to profit or loss. For the unsubscribed shares where the employees still have the option to subscribe in the future, these are accounted for as options.
Equity
When the shares are sold at premium, the difference between the proceeds at the par value is credited to “Additional paid-in capital” account. Direct costs incurred related to equity issuance are chargeable to “Additional paid-in capital” account. If additional paid-in capital is not sufficient, the excess is charged against retained earnings. When the
Group issues more than one class of stock, a separate account is maintained for each class of stock and the number of shares issued.
Subscriptions receivable pertains to the uncollected portion of the subscribed shares.
Retained earnings represent accumulated earnings of the Group less dividends declared.
Own equity instruments which are reacquired (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognized in additional paid-in capital. Voting rights related to treasury shares are nullified for the Group and no dividends are allocated to them respectively. When the shares are retired, the capital stock account is reduced by its par value and the excess of cost over par value upon retirement is debited to additional paid-in capital to the extent of the specific or average additional paid-in capital when the shares were issued and to retained earnings for the remaining balance.
Other reserves pertain to gain from sale of investments in a subsidiary by the Parent Company that did not result to a loss of control.
Income Tax
Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that have been enacted or substantively enacted as of the reporting date.
Deferred tax
Deferred tax is provided, using the liability method, for all temporary differences, with certain exceptions, at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences with certain exceptions. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable income will be available against which the deferred tax assets can be used or when there are sufficient taxable temporary differences which are expected to reverse in the same period as the expected reversal of the deductible temporary differences.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable income will allow all or part of the deferred tax assets to be recovered.
Deferred tax assets and liabilities are measured at the tax rate that is expected to apply in the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted as of the reporting date.
Deferred tax assets and liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
Earnings Per Share (EPS)
Basic EPS is computed by dividing net income applicable to common and participating preferred stock by the weighted average number of common and equivalent preferred shares outstanding during the year and adjusted to give retroactive effect to any stock dividends declared and changes to preferred share participation rate during the period. The participating preferred shares participate in the earnings at a rate of 1/10 of the dividends paid to a common share.
Diluted EPS is computed by dividing earnings attributable to common and participating preferred shares by the weighted average number of common shares outstanding during the period, after giving retroactive effect of any stock dividends during the period and adjusted for the effect of dilutive options. Outstanding stock options will have a dilutive effect under the treasury stock method only when the average market price of the underlying common share during the period exceeds the exercise price of the option. Where the effects of the assumed exercise of all outstanding options have anti-dilutive effect, basic and diluted EPS are stated at the same amount.
Assets Held in Trust
Assets which are owned by MWSS, POL, TIEZA and CDC that are operated by the Group under the Group’s concession agreements are not reflected in the consolidated statement of financial position but are considered as
Assets Held in Trust.
Segment Reporting
The Group’s operating businesses are organized based on geographic location. Financial information on business segments is presented in Note 27 to the consolidated financial statements.
Events After the Reporting Date
Any post year-end event up to the date of the auditors’ report that provide additional information about the Group’s financial position at the reporting date (adjusting events) is reflected in the consolidated financial statements. Any post year-end event that is not an adjusting event is disclosed in the consolidated financial statements when material.
3.
Management’s Judgments and Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with PFRS requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from such estimates.
Management believes the following represent a summary of these significant estimates and judgments:
Service concession arrangement
In applying Philippine Interpretation IFRIC 12, Service Concession Arrangements , the Group has made a judgment that its concession agreements with MWSS, POL, TIEZA and CDC qualify under the Intangible Asset model while its concession agreement with the Provincial Government of Cebu qualifies under the Financial Asset model. The accounting policy on the Group’s SCA under the Intangible Asset and Financial Asset models are discussed in
Note 2.
Impairment of AFS financial assets
The Group treats AFS financial assets as impaired when there has been a significant or prolonged decline in the fair value below the cost of these assets or where other objective evidence of impairment exists. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. The Group treats ‘significant’ generally as 20% or more and
‘prolonged’ as greater than six months for quoted securities. In addition, the Group evaluates other factors, including the future cash flows and the discount factors of these securities.
Redeemable preferred shares
These shares are treated as equity and are therefore presented under the “equity” section of the consolidated statement of financial position, as management concluded that these are not mandatorily redeemable since the redemption of the preferred shares is at the Parent Company’s option. In 2012, the Parent Company’s shareholders approved the retirement of the said shares. See Note 21 for the related balances.
Investments in subsidiaries
The Parent Company considers MWTS, MWIS, AAA, LAWC, CWC, BIWC, MWAP, MWSAH, TDWH, KDWH, MW
Consortium and CMWD as its subsidiaries because it exercises control over the said entities. The Group is exposed, or has rights to variable returns from its involvement with the entities and has the ability to affect those returns through its power over the entities (see Note 1).
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Investments in associates
The Parent Company considers Thu Duc Water B.O.O. Corporation (TDW), Kenh Dong Water Supply Joint Stock
Company (KDW) and Saigon Water Infrastructure Corporation (Saigon Water) as associates because it has the power to participate in the financial and operating policy decisions of these entities but does not have control or joint control over those policies. See Note 13 for the related balances.
Impairment of investment in associate
The Group has determined that there are no indicators of impairment for its investments in TDW, KDW and Saigon
Water. Accordingly, no impairment testing was done for these investments.
Operating lease commitments - Group as lessee
The Group has determined, based on the evaluation of the terms and conditions of the arrangements, that the significant risks and rewards for properties leased from third parties are retained by the lessors and accordingly, accounts for these contracts as operating leases.
Contingencies
The Group is currently involved in various legal proceedings in the ordinary conduct of business. The estimate of the probable costs for the resolution of these claims has been developed in consultation with internal and outside counsels handling the defense in these matters and is based upon an analysis of potential results.
The Group currently does not believe these proceedings will have a material or adverse effect on the Group’s financial position and results of operations (see Note 31).
Use of Estimates
Key assumptions concerning the future and other sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are discussed below.
Revenue and cost recognition
The Group’s revenue recognition policies require management to make use of estimates and assumptions that may affect the reported amounts of the following revenue and costs:
 Management contracts
The Group’s management contracts recognized based on the percentage of completion method is measured principally on the basis of the estimated completion of a physical proportion of the contract work, and by reference to the actual costs incurred to date over the estimated total costs of the project.
 Rehabilitation works
The Group measures revenue from rehabilitation works at the fair value of the consideration received or receivable. The Company’s revenue from rehabilitation works recognized based on the percentage of completion are measured principally on the basis of the estimated completion of a physical proportion of the contract works, and by reference to the actual costs incurred to date over the estimated total costs of the project. Revenue from rehabilitation works recognized by the Group is equivalent to the costs of rehabilitation works incurred as these costs are recovered by the Group through its right to charge the customers.
 Water and Sewerage
The Group’s revenue from water and sewerage are billed every month according to the bill cycles of the customers. As a result of bill cycle cut-off, monthly service revenue earned but not yet billed at end of the month are estimated and accrued. These estimates are based on historical consumption of the customers. Twenty percent (20%) of water revenues are recognized by the Parent Company as environmental charges with the rationalization of the sewerage and environmental charges as approved in the 2008 rate rebasing.
Estimating allowance for doubtful accounts
The Group maintains allowance for doubtful accounts based on the results of the individual and collective assessments under PAS 39. Under the individual assessment, the Group is required to obtain the present value of estimated cash flows using the receivable’s original effective interest rate. Impairment loss is determined as the difference between the receivable’s carrying amount and the computed present value. Factors considered in individual assessment are payment history, past due status and term. The collective assessment would require the
Group to group its receivables based on the credit risk characteristics (industry, customer type, customer location, past-due status and term) of the customers. Impairment loss is then determined based on historical loss experience of the receivables grouped per credit risk profile. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.
The methodology and assumptions used for the individual and collective assessments are based on management’s judgment and estimate. Therefore, the amount and timing of recorded expense for any period would differ depending on the judgments and estimates made for the year.
As of December 31, 2013 and 2012, the outstanding balance of allowance for doubtful accounts amounted to
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MANILA WATER ANNUAL REPORT 2013

Investments in associates
The Parent Company considers Thu Duc Water B.O.O. Corporation (TDW), Kenh Dong Water Supply Joint Stock
Company (KDW) and Saigon Water Infrastructure Corporation (Saigon Water) as associates because it has the power to participate in the financial and operating policy decisions of these entities but does not have control or joint control over those policies. See Note 13 for the related balances.
Impairment of investment in associate
The Group has determined that there are no indicators of impairment for its investments in TDW, KDW and Saigon
Water. Accordingly, no impairment testing was done for these investments.
Operating lease commitments - Group as lessee
The Group has determined, based on the evaluation of the terms and conditions of the arrangements, that the significant risks and rewards for properties leased from third parties are retained by the lessors and accordingly, accounts for these contracts as operating leases.
Contingencies
The Group is currently involved in various legal proceedings in the ordinary conduct of business. The estimate of the probable costs for the resolution of these claims has been developed in consultation with internal and outside counsels handling the defense in these matters and is based upon an analysis of potential results.
The Group currently does not believe these proceedings will have a material or adverse effect on the Group’s financial position and results of operations (see Note 31).
Use of Estimates
Key assumptions concerning the future and other sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are discussed below.
Revenue and cost recognition
The Group’s revenue recognition policies require management to make use of estimates and assumptions that may affect the reported amounts of the following revenue and costs:
 Management contracts
The Group’s management contracts recognized based on the percentage of completion method is measured principally on the basis of the estimated completion of a physical proportion of the contract work, and by reference to the actual costs incurred to date over the estimated total costs of the project.
 Rehabilitation works
The Group measures revenue from rehabilitation works at the fair value of the consideration received or receivable. The Company’s revenue from rehabilitation works recognized based on the percentage of completion are measured principally on the basis of the estimated completion of a physical proportion of the contract works, and by reference to the actual costs incurred to date over the estimated total costs of the project. Revenue from rehabilitation works recognized by the Group is equivalent to the costs of rehabilitation works incurred as these costs are recovered by the Group through its right to charge the customers.
 Water and Sewerage
The Group’s revenue from water and sewerage are billed every month according to the bill cycles of the customers. As a result of bill cycle cut-off, monthly service revenue earned but not yet billed at end of the month are estimated and accrued. These estimates are based on historical consumption of the customers. Twenty percent (20%) of water revenues are recognized by the Parent Company as environmental charges with the rationalization of the sewerage and environmental charges as approved in the 2008 rate rebasing.
Estimating allowance for doubtful accounts
The Group maintains allowance for doubtful accounts based on the results of the individual and collective assessments under PAS 39. Under the individual assessment, the Group is required to obtain the present value of estimated cash flows using the receivable’s original effective interest rate. Impairment loss is determined as the difference between the receivable’s carrying amount and the computed present value. Factors considered in individual assessment are payment history, past due status and term. The collective assessment would require the
Group to group its receivables based on the credit risk characteristics (industry, customer type, customer location, past-due status and term) of the customers. Impairment loss is then determined based on historical loss experience of the receivables grouped per credit risk profile. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.
The methodology and assumptions used for the individual and collective assessments are based on management’s judgment and estimate. Therefore, the amount and timing of recorded expense for any period would differ depending on the judgments and estimates made for the year.
As of December 31, 2013 and 2012, the outstanding balance of allowance for doubtful accounts amounted to
Estimating useful lives of property and equipment
The Group estimates the useful lives of its property and equipment based on the period over which the assets are expected to be available for use. The Group reviews annually the estimated useful lives of property and equipment based on factors that include asset utilization, internal technical evaluation, technological changes, environmental and anticipated use of the assets tempered by related industry benchmark information. It is possible that future results of operations could be materially affected by changes in the Group’s estimates brought about by changes in the factors mentioned. A reduction in the estimated useful lives of property and equipment would increase depreciation and amortization and decrease noncurrent assets.
In 2013 and 2012, there were no changes in the estimated useful lives of the Group’s property and equipment. As of
Estimates used in valuation of receivable from Bonifacio Water Corporation (BWC)
The Group used estimates in determining the value of its receivable from BWC (see Notes 6 and 14). The fair value of the receivable from BWC has been determined based on the present value of forecasted collections for the receivable using appropriate discount rate. The forecasted collection is based on estimated billed volume using 1%
Asset impairment
The Group assesses the impairment of assets (property and equipment, SCA, other current assets and other noncurrent assets) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The factors that the Group considers important which could trigger an impairment review include the following:
 significant underperformance relative to expected historical or projected future operating results;
 significant changes in the manner of usage of the acquired assets or the strategy for the Group’s overall business; and
 significant negative industry or economic trends.
As described in the accounting policy, the Group estimates the recoverable amount as the higher of the net selling price and value in use.
In determining the present value of estimated future cash flows expected to be generated from the continued use of the assets, the Group is required to make estimates and assumptions regarding the expected future cash generation of the assets, discount rates to be applied and the expected period of benefits. See Notes 8, 9, 10, 13 and 14 for the related balances.
Goodwill impairment
Goodwill impairment testing requires an estimation if the recoverable amount which is the fair value less cost to sell or value in use of the cash-generating units to which the goodwill is allocated. Estimating value in use amount requires management to make an estimate of the expected future cash flows for the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of cash flows.
The Parent Company’s impairment test for goodwill related to the acquisition of CWC is based on value in use and fair value less cost to sell calculations. The value in use calculations in 2013 used a discounted cash flow model.
The cash flows are derived from the budget for the next 12 years and assume a steady growth rate. The Parent
Company used the remaining concession life of CWC, which is a period longer than the maximum of five years.
The recoverable amount is most sensitive to discount rate used for the discounted cash flow model. The post-tax discount rate applied to cash flow projections is 11.64% for 2013.
December 31, 2013 and 2012. No impairment loss was recognized as a result of the impairment testing performed.
Deferred tax assets
The Group reviews the carrying amounts of deferred income taxes at each reporting date and reduces deferred tax assets to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax assets to be utilized. However, there is no assurance that the Group will generate sufficient taxable income to allow all or part of the deferred tax assets to be utilized.
Also, the Group does not recognize certain deferred taxes on deductible temporary differences where doubt exists as to the tax benefits they will bring in the future. See Note 20 for the related balances.
Deferred FCDA
Under the concession agreements entered into by the Parent Company and BIWC with MWSS and TIEZA, respectively, the Parent Company and BIWC are entitled to recover (refund) foreign exchange losses (gains) arising
101

from concession loans and any concessionaire loans. The Parent Company and BIWC recognized deferred FCDA
(included as part of “Other noncurrent assets” or “Other noncurrent liabilities” in the consolidated statement of financial position) for both realized and unrealized foreign exchange gains and losses. Deferred FCDA is set up as an asset for the realized and unrealized exchange losses since this is a resource controlled by the Parent Company and
BIWC as a result of past events and from which future economic benefits are expected to flow to the Parent Company and BIWC. Realized and unrealized foreign exchange gains, on the other hand, which will be refunded to the customers, are presented as liability. As of December 31, 2013, the Parent Company and BIWC’s deferred FCDA
(see Note 18).
Share-based payments
The expected life of the options is based on the expected exercise behavior of the stock option holders and is not necessarily indicative of the exercise patterns that may occur. The expected volatility is based on the average historical price volatility which may be different from the expected volatility of the shares of stock of the Parent
Company. See Note 21 for the related balances.
Pension and other retirement benefits
The cost of defined benefit pension plans and other post-employment medical benefits as well as the present value of the pension obligation are determined using actuarial valuations. The actuarial valuation involves making various assumptions. These include the determination of the discount rates, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, defined benefit obligations are highly sensitive to changes in these assumptions. All assumptions are reviewed at
In determining the appropriate discount rate, management considers the interest rates of government bonds that are denominated in the currency in which the benefits will be paid, with extrapolated maturities corresponding to the expected duration of the defined benefit obligation.
The mortality rate is based on publicly available mortality tables for the specific country and is modified accordingly with estimates of mortality improvements. Future salary increases and pension increases are based on expected future inflation rates for the specific country.
Further details about the assumptions used are provided in Note 17.
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded in the consolidated statement of financial position or disclosed in the notes cannot be derived from active markets, they are determined using internal valuation techniques using generally accepted market valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimates are used in establishing fair values. These estimates may include considerations of liquidity, volatility and correlation (see Note 28).
4.
Acquisition of a Business
Laguna Technopark, Inc.
On December 23, 2013, LAWC signed an Asset Purchase Agreement with Laguna Technopark, Inc. (LTI) with a agreement. LAWC officially took over as the exclusive water service provider of LTI on December 31, 2013.
The fair value of the water assets purchased has been determined based on the present value of the projected cash flows from operations. No goodwill is recognized based on the purchase price allocation.
5.
Cash and Cash Equivalents and Short-Term Cash Investments
Cash and cash equivalents consist of:
Cash on hand and in banks (Note 23)
Cash equivalents
2013
December 31
2012
5,251,994,458 3,585,996,345
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MANILA WATER ANNUAL REPORT 2013

from concession loans and any concessionaire loans. The Parent Company and BIWC recognized deferred FCDA
(included as part of “Other noncurrent assets” or “Other noncurrent liabilities” in the consolidated statement of financial position) for both realized and unrealized foreign exchange gains and losses. Deferred FCDA is set up as an asset for the realized and unrealized exchange losses since this is a resource controlled by the Parent Company and
BIWC as a result of past events and from which future economic benefits are expected to flow to the Parent Company and BIWC. Realized and unrealized foreign exchange gains, on the other hand, which will be refunded to the customers, are presented as liability. As of December 31, 2013, the Parent Company and BIWC’s deferred FCDA
(see Note 18).
Share-based payments
The expected life of the options is based on the expected exercise behavior of the stock option holders and is not necessarily indicative of the exercise patterns that may occur. The expected volatility is based on the average historical price volatility which may be different from the expected volatility of the shares of stock of the Parent
Company. See Note 21 for the related balances.
Pension and other retirement benefits
The cost of defined benefit pension plans and other post-employment medical benefits as well as the present value of the pension obligation are determined using actuarial valuations. The actuarial valuation involves making various assumptions. These include the determination of the discount rates, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, defined benefit obligations are highly sensitive to changes in these assumptions. All assumptions are reviewed at
In determining the appropriate discount rate, management considers the interest rates of government bonds that are denominated in the currency in which the benefits will be paid, with extrapolated maturities corresponding to the expected duration of the defined benefit obligation.
The mortality rate is based on publicly available mortality tables for the specific country and is modified accordingly with estimates of mortality improvements. Future salary increases and pension increases are based on expected future inflation rates for the specific country.
Further details about the assumptions used are provided in Note 17.
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded in the consolidated statement of financial position or disclosed in the notes cannot be derived from active markets, they are determined using internal valuation techniques using generally accepted market valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimates are used in establishing fair values. These estimates may include considerations of liquidity, volatility and correlation (see Note 28).
4.
Acquisition of a Business
Laguna Technopark, Inc.
On December 23, 2013, LAWC signed an Asset Purchase Agreement with Laguna Technopark, Inc. (LTI) with a agreement. LAWC officially took over as the exclusive water service provider of LTI on December 31, 2013.
The fair value of the water assets purchased has been determined based on the present value of the projected cash flows from operations. No goodwill is recognized based on the purchase price allocation.
5.
Cash and Cash Equivalents and Short-Term Cash Investments
Cash and cash equivalents consist of:
Cash on hand and in banks (Note 23)
Cash equivalents
2013
December 31
2012
5,251,994,458 3,585,996,345
Cash in banks earns interest at the respective bank deposit rates. Cash equivalents are highly liquid investments that are made for varying periods of up to three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term rates.
Short-term cash investments pertain to the Group’s time deposits with maturities of more than three months up to one year and earned interest of 1.25% to 5.00% and 1.20% to 3.75% in 2013 and 2012, respectively. As of December 31,
Interest income earned from cash in banks, cash equivalents and short-term cash investments amounted to
6.
Receivables
This account consists of receivables from:
Customers (Note 29)
Residential
Commercial
Semi-business
Industrial
Saigon Water Corporation (SAWACO) (Note 24)
BWC (Note 14)
Employees
Interest from banks
Others
Less allowance for doubtful accounts (Note 3)
Less noncurrent portion of receivable from BWC (Note 14)
2013 2012
224,096,635
77,597,988
37,522,466
101,904,224
544,373,611
54,446,968
11,550,628
150,478,433
2,508,353,933
(683,423,459)
1,824,930,474
(431,380,407)
308,271,638
90,361,879
50,109,159
142,411,840
572,878,039
34,290,779
17,171,498
77,637,650
2,553,481,799
(627,778,223)
1,925,703,576
(473,731,149)
The classes of the Group’s receivables arising from water and sewer services rendered to customers, collectible within 30 days from bill generation, follow:
 Residential - pertains to receivables from residential households.
 Commercial - pertains to receivables from commercial customers.
 Semi-business - pertains to receivables from small businesses.
 Industrial - pertains to receivables from customers for industrial and manufacturing purposes.
Receivable from SAWACO pertains to the unpaid portion billing for services rendered by the Group in relation to its management contract with SAWACO (see Note 24).
Receivable from BWC pertains to the assigned receivable from the share purchase agreement between the Parent
Company and Veolia Water Philippines, Inc. (VWPI). On November 29, 2011, the Parent Company completed the acquisition of VWPI’s interest in the common shares of CWC resulting in the Parent Company obtaining 100% control down as follows:
Investment in CWC
Receivable from BWC 599,341,670
The fair value of the receivable from BWC has been determined based on the present value of the forecasted collections for the receivable. Rollforward analysis of the discount for 2013 and 2012 follows:
2013
Balance at beginning of year
Revaluation adjustments
Amortization
Balance at end of year
492,887
(44,629,842)
2012
54,845,186
(43,044,776)
103

The Group recognizes gains and losses arising from the change in the forecasted amounts after adjusting for the respectively, was recorded as “Gain (loss) on revaluation of receivable from Bonifacio Water Corporation” in the consolidated statements of comprehensive income.
Others represent receivables from shared facilities, insurance agencies and collection facilities.
Movements in the Group’s allowance for doubtful accounts follow:
At January 1
Provision
At December 31
Individual impairment
Collective impairment
Residential
34,225,572
435,472,868
2013
Receivable from Customers
Commercial Semi-Business
9,905,479 1,835,800
96,996,231 30,287,670
Industrial
1,105,710
4,210,714
Other
Receivables
8,572,675
76,489,980
Total
55,645,236
643,457,463
At January 1
Provision
Write off
At December 31
Individual impairment
Collective impairment
Residential
35,155,320
–
393,823,422
2012
Receivable from Customers
Commercial Semi-Business
27,212,784
(1,047,178)
11,103,319
–
Industrial
1,953,905
–
71,194,877 23,339,163 3,022,407
Other
Receivables
3,251,247
–
69,098,171
Total
78,676,575
(1,047,178)
560,478,040
7.
Materials and Supplies - at cost
This account consists of:
Maintenance materials
Water treatment chemicals
Water meters and connection supplies
2013
27,507,708
1,243,885
2012
39,067,122
12,204,478
8.
Other Current Assets
This account consists of:
Advances to contractors
Prepaid expenses
Value-added input tax
Deposit in escrow
Others
2013
130,665,205
77,162,833
–
14,439,684
2012
94,884,854
45,820,806
482,660,370
11,275,867
Advances to contractors are normally applied within a year against progress billings.
Prepaid expenses include prepayments for business taxes, insurance and employee health care expenses and other benefits.
Value-added input tax is fully realizable and will be applied against future output tax.
Deposit in escrow represents the deposit made by the Parent Company to Suez Environnement for the acquisition of the 51% share in PT PAM Lyonnaise Jaya (PALYJA), the water concessionaire for the West Zone of Jakarta,
Indonesia. The share purchase agreement (SPA) between the Parent Company and Suez Environnement was the purchase price, was required and was held by an escrow agent to secure fulfillment of certain conditions precedent. In 2013, the Parent Company failed to obtain written consent from the Jakarta governor and Perusahaan
Daerah Air Minum Daerah Khusus Ibukota Jakarta (“PAM Jaya”), the water concessionaire for the East Zone, for the controlling stake in PALYJA. As a result, the deposit in escrow was refunded to the Parent Company in August 2013.
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MANILA WATER ANNUAL REPORT 2013

9.
Property and Equipment
The rollforward analysis of this account follows:
2013
Cost
At January 1
Additions
Transfer (Note 10)
Retirement
Disposals
At December 31
Accumulated Depreciation and Amortization
At January 1
Depreciation and amortization
Retirement
Disposals
At December 31
Net Book Value at December 31
Office Furniture and Equipment
Transportation
Equipment
145,016,805
–
(113,765)
(517,980)
1,334,639,136
Land
P =1,663,195,722
30,035,389
–
7,288,628
(198,377,872)
–
(8,398,571)
–
–
419,011,115 1,472,106,478
Leasehold
Improvements
31,209,582
–
–
–
236,175,702
Plant and Technical
Equipment Total
P =4,283,232,592
61,395,244
–
274,945,648
(198,377,872)
(29,464)
–
(143,229)
(8,916,551)
888,808,157 4,350,740,588
991,417,340
183,182,680
(6,320)
(504,504)
1,174,089,196
299,442,260
32,788,404
–
(5,517,131)
326,713,533
P =1,472,106,478
–
–
–
–
–
162,861,246
21,628,107
–
–
184,489,353
511,763,657
114,926,463
(2,531)
–
626,687,589
1,965,484,503
352,525,654
(8,851)
(6,021,635)
2,311,979,671
P =2,038,760,917
2012
Cost
At January 1
Additions
Reclassifications
Disposals
At December 31
Accumulated Depreciation and Amortization
At January 1
Depreciation and amortization
Reclassifications
Disposals
At December 31
Net Book Value at December 31
Office Furniture and Equipment
159,747,489
1,200,164
(2,431,031)
1,190,254,076
Transportation
Equipment Land
P =1,397,789,749
69,458,973
–
265,405,973
–
(11,425,231)
397,374,297
–
1,663,195,722
Leasehold
Improvements
10,451,793
–
(3,200)
204,966,120
Plant and Technical
Equipment Total
P =3,676,064,274
121,653,335
(1,200,164)
626,717,563
–
(5,689,783)
827,442,377
(19,549,245)
4,283,232,592
795,587,117
196,585,607
1,663,264
(2,418,648)
991,417,340
256,159,018
54,521,428
–
(11,238,186)
299,442,260
P =1,663,195,722
–
–
–
–
–
138,389,421
24,475,025
–
(3,200)
162,861,246
393,872,665
124,070,405
(1,663,264)
(4,516,149)
511,763,657
1,584,008,221
399,652,465
–
(18,176,183)
1,965,484,503
P =2,317,748,089 pertains to rehabilitation works (Note 10).
As of December 31, 2013 and 2012, fully depreciated property and equipment that are still in use by the Group
10.
Service Concession Assets and Obligations
A.
Service concession assets
The movements in this account follow:
Cost
Balance at beginning of year
Additions during the year (Note 1)
Rehabilitation works (Note 9)
Loan drawdowns
Local component cost
Acquired through business combination (Note 4)
Balance at end of year
Accumulated Amortization
Balance at beginning of year
Amortization
Balance at end of year
Net Book Value
2013 2012
P =56,993,553,161
5,071,257,510
253,846,082
20,506,806
625,000,000
69,942,684,717
5,877,838,288
1,085,497,991
15,184,879
–
63,972,074,319
13,218,217,984
2,142,237,338
15,360,455,322
11,297,795,264
1,920,422,720
13,218,217,984
P =50,753,856,335
105

SCA consists of the present value of total estimated concession fee payments, including regulatory costs and local component costs, of the Parent Company, LAWC, BIWC and CWC, pursuant to the Group’s concession agreements and the revenue from rehabilitation works which is equivalent to the related cost for the rehabilitation works covered by the service concession arrangements.
2013 and 4.89% to 7.23% in 2012.
In March 2010, the Parent Company entered into a MOA with MWSS for the repayment of the Export-Import Bank of and 2012, respectively (see Note 1).
B.
Service concession obligations
POL Concession Fees
Under LAWC’s concession agreement with POL, LAWC is required to pay concession fees to POL computed as a percentage of water sales as follows:
Operational Period
Years 1 to 5
Years 6 to 10
Years 11 to 25
Percentage of Water Sales
4%
3%
2%
Advance payment to POL was made for the said concession fees and 70% of the annual concession fees is applied against the said advances. The remaining 30% of the annual concession fees is expensed in the period they are respectively.
BIWC Concession Fees
The aggregate concession fee pursuant to BIWC’s concession agreement with TIEZA is equal to the sum of the following: a.
Servicing the aggregate peso equivalent of all liabilities of BWSS as of commencement date; b.
5% of the monthly gross revenue of BIWC, inclusive of all applicable taxes which are for the account of BIWC.
c.
Payment of annual operating budget of the TIEZA Regulatory Office starting 2010. For 2010 and 2011, the concession fees pertaining to the 5% annual gross revenue of BIWC, within a period of 10 years from the signing of the concession agreement or until fully paid. Any amount payable after application of the advance payment will be expensed in the period this is incurred. Advance payment was fully utilized in 2012.
CDC Concession Fees
The aggregate concession fee pursuant to CWC’s concession agreement with CDC is equal to the sum of the following: a.
Annual franchise fee of P b.
Semi-annual rental fees of P
MWSS Concession Fees
The aggregate concession fees of the Parent Company pursuant to the Agreement are equal to the sum of the following: a.
10% of the aggregate peso equivalent due under any MWSS loan which has been disbursed prior to the
Commencement Date, including MWSS loans for existing projects and the Umiray Angat Transbasin Project
(UATP), on the prescribed payment date; b.
10% of the aggregate peso equivalent due under any MWSS loan designated for the UATP which has not been disbursed prior to the Commencement Date, on the prescribed payment date; c.
10% of the local component costs and cost overruns related to the UATP;
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MANILA WATER ANNUAL REPORT 2013

SCA consists of the present value of total estimated concession fee payments, including regulatory costs and local component costs, of the Parent Company, LAWC, BIWC and CWC, pursuant to the Group’s concession agreements and the revenue from rehabilitation works which is equivalent to the related cost for the rehabilitation works covered by the service concession arrangements.
2013 and 4.89% to 7.23% in 2012.
In March 2010, the Parent Company entered into a MOA with MWSS for the repayment of the Export-Import Bank of and 2012, respectively (see Note 1).
B.
Service concession obligations
POL Concession Fees
Under LAWC’s concession agreement with POL, LAWC is required to pay concession fees to POL computed as a percentage of water sales as follows:
Operational Period
Years 1 to 5
Years 6 to 10
Years 11 to 25
Percentage of Water Sales
4%
3%
2%
Advance payment to POL was made for the said concession fees and 70% of the annual concession fees is applied against the said advances. The remaining 30% of the annual concession fees is expensed in the period they are respectively.
BIWC Concession Fees
The aggregate concession fee pursuant to BIWC’s concession agreement with TIEZA is equal to the sum of the following: a.
Servicing the aggregate peso equivalent of all liabilities of BWSS as of commencement date; b.
5% of the monthly gross revenue of BIWC, inclusive of all applicable taxes which are for the account of BIWC.
c.
Payment of annual operating budget of the TIEZA Regulatory Office starting 2010. For 2010 and 2011, the concession fees pertaining to the 5% annual gross revenue of BIWC, within a period of 10 years from the signing of the concession agreement or until fully paid. Any amount payable after application of the advance payment will be expensed in the period this is incurred. Advance payment was fully utilized in 2012.
CDC Concession Fees
The aggregate concession fee pursuant to CWC’s concession agreement with CDC is equal to the sum of the following: a.
Annual franchise fee of P b.
Semi-annual rental fees of P
MWSS Concession Fees
The aggregate concession fees of the Parent Company pursuant to the Agreement are equal to the sum of the following: a.
10% of the aggregate peso equivalent due under any MWSS loan which has been disbursed prior to the
Commencement Date, including MWSS loans for existing projects and the Umiray Angat Transbasin Project
(UATP), on the prescribed payment date; b.
10% of the aggregate peso equivalent due under any MWSS loan designated for the UATP which has not been disbursed prior to the Commencement Date, on the prescribed payment date; c.
10% of the local component costs and cost overruns related to the UATP; d.
100% of the aggregate peso equivalent due under MWSS loans designated for existing projects, which have not been disbursed prior to the Commencement Date and have been either awarded to third party bidders or elected by the Parent Company for continuation; e.
100% of the local component costs and cost overruns related to existing projects; and f.
Parent Company’s share in the repayment of MWSS loan for the financing of the project.
The schedule of undiscounted future concession fee payments follows:
Year
2014
2015
2016
2017
2018
2019 onwards
In Original Currency
Foreign Currency
Denominated
Loans
(Translated to
US Dollars)
$9,537,211
6,514,545
8,866,507
7,055,308
7,262,061
51,869,296
Peso Loans/
Project Local
Support
395,714,907
395,714,907
395,714,907
395,714,907
7,518,583,229
$91,104,928
Total Peso
Equivalent*
684,960,705
789,387,818
708,970,582
718,150,415
9,821,579,971
Estimated concession fee payments on future concession projects, excluding the Group’s share in current operating budget is still not determinable. It is only determinable upon loan drawdowns and actual construction of the related concession projects.
C.
Concession financial receivable
On December 13, 2013, CMWD received a Notice of Award for the bulk supply of water to the Metropolitan Cebu
Water District (MCWD). In relation to this, CMWD and MCWD signed a 20-year Bulk Water Supply Contract for the supply of 18 million liters per day of water for the first year and 35 million liters per day of water for years 2 up to 20.
Initial delivery of water is expected to occur after six months from the signing of the Bulk Water Supply Contract.
Concession financial receivable is accounted for in accordance with IFRIC 12, arising from the bulk water contract between CMWD and MCWD whereby potable and treated water shall be delivered by CMWD at an aggregate volume of 18,000 cubic meters per day for the first year and 35,000 cubic meters per day for the succeeding years up to
The breakdown of the concession financial receivable is as follow:
Current
Noncurrent 603,905,224
11.
Available-for-Sale Financial Assets
This account consists of investments in:
Quoted investments - at fair value (Notes 28 and 29)
Debt
Equity
Unquoted investments (Note 29)
Debt
Equity - at cost
2013
–
–
2,409,290
2012
156,000,000
83,766,401
2,409,290
Quoted investments in debt securities consist mainly of government securities such as retail treasury bonds. These bonds earn interest that ranged from 6.25% to 8.25% in 2013 and 2.3% to 8.25% in 2012 with various maturity dates of up to five years.
Quoted investments in equities pertain to listed preferred shares of AC, a shareholder (see Note 23).
107

Unquoted debt securities consist mainly of corporate commercial papers, corporate bonds and Tier 2 notes. These securities have a maturity of more than five years. In 2013, all the unquoted debt securities reached their maturities.
Unquoted investments in equities in 2013 and 2012 include unlisted preferred shares in a public utility company.
Changes in this account are as follows:
2013
Quoted Unquoted Total
Balance at beginning of year
Maturities during the year
Fair value adjustments
Balance at end of year
(301,343,004)
(3,502,145)
(83,766,401)
–
(385,109,405)
(3,502,145)
2012
Balance at beginning of year
Additions during the year
Disposals during the year
Fair value adjustments
Translation adjustment
Balance at end of year
Quoted
33,790,857
(566,664,313)
(8,287,636)
–
Unquoted Total
– 33,790,857
(279,501,486) (846,165,799)
1,750,457 (6,537,179)
1,064,690 1,064,690
The rollforward analysis of unrealized gain on AFS financial assets for 2013 and 2012 follow:
2013
Balance at beginning of year
Unrealized fair value loss recognized in OCI
Realized fair value gain transferred from OCI and recognized in profit or loss
Balance at end of year
(3,502,145)
(15,065,800)
2012
(6,537,179)
(17,934,347)
Translation adjustments pertain to the MWSAH’s 1% unquoted investment in TRILITY Pty. Ltd. (TRILITY) shares that were sold in 2012.
12.
Investment in Joint Venture
On February 5, 2010, the Parent Company entered into a Joint Venture Agreement (JVA) with Jindal Water
Infrastructure Limited (JITF Water). The JVA established the joint venture company Jindal Manila Water
Development, Co. Ltd. (JMWD), to serve as a vehicle for the planning and development of water, wastewater and other environmental services in India. JMWD changed its business name to JITF Manila Water Development Co. Ltd.
(JITF Manila Water) on March 18, 2011.
On August 30, 2011, the Parent Company sold its ownership interest in JITF Manila Water to JITF Water.
The share of the Group in the net loss of JITF Manila Water for the period January 1 to August 30, 2011 amounted to
13.
Investments in Associates
This account consists of the following:
Acquisition cost
Accumulated equity in net earnings
Cumulative translation adjustment
2013
293,975,032
323,581,306
2012
206,762,409
(23,173,215)
Details of the Group’s investments in associates are shown below:
Thu Duc Water B.O.O. Corporation
On October 12, 2011, TDWH and Ho Chi Minh City Infrastructure Investment Joint Stock Company (CII) entered into a share sale and purchase agreement whereby CII will sell to TDWH its 49% interest (2.45 million common shares) in
108
MANILA WATER ANNUAL REPORT 2013

Unquoted debt securities consist mainly of corporate commercial papers, corporate bonds and Tier 2 notes. These securities have a maturity of more than five years. In 2013, all the unquoted debt securities reached their maturities.
Unquoted investments in equities in 2013 and 2012 include unlisted preferred shares in a public utility company.
Changes in this account are as follows:
2013
Quoted Unquoted Total
Balance at beginning of year
Maturities during the year
Fair value adjustments
Balance at end of year
(301,343,004)
(3,502,145)
(83,766,401)
–
(385,109,405)
(3,502,145)
2012
Balance at beginning of year
Additions during the year
Disposals during the year
Fair value adjustments
Translation adjustment
Balance at end of year
Quoted
33,790,857
(566,664,313)
(8,287,636)
–
Unquoted Total
– 33,790,857
(279,501,486) (846,165,799)
1,750,457 (6,537,179)
1,064,690 1,064,690
The rollforward analysis of unrealized gain on AFS financial assets for 2013 and 2012 follow:
2013
Balance at beginning of year
Unrealized fair value loss recognized in OCI
Realized fair value gain transferred from OCI and recognized in profit or loss
Balance at end of year
(3,502,145)
(15,065,800)
2012
(6,537,179)
(17,934,347)
Translation adjustments pertain to the MWSAH’s 1% unquoted investment in TRILITY Pty. Ltd. (TRILITY) shares that were sold in 2012.
12.
Investment in Joint Venture
On February 5, 2010, the Parent Company entered into a Joint Venture Agreement (JVA) with Jindal Water
Infrastructure Limited (JITF Water). The JVA established the joint venture company Jindal Manila Water
Development, Co. Ltd. (JMWD), to serve as a vehicle for the planning and development of water, wastewater and other environmental services in India. JMWD changed its business name to JITF Manila Water Development Co. Ltd.
(JITF Manila Water) on March 18, 2011.
On August 30, 2011, the Parent Company sold its ownership interest in JITF Manila Water to JITF Water.
The share of the Group in the net loss of JITF Manila Water for the period January 1 to August 30, 2011 amounted to
13.
Investments in Associates
This account consists of the following:
Acquisition cost
Accumulated equity in net earnings
Cumulative translation adjustment
2013
293,975,032
323,581,306
2012
206,762,409
(23,173,215)
Details of the Group’s investments in associates are shown below:
Thu Duc Water B.O.O. Corporation
On October 12, 2011, TDWH and Ho Chi Minh City Infrastructure Investment Joint Stock Company (CII) entered into a share sale and purchase agreement whereby CII will sell to TDWH its 49% interest (2.45 million common shares) in
TDW. On December 8, 2011, TDWH completed the acquisition of CII’s interest in the common shares of TDW after which TDWH obtained significant influence in TDW.
The financial information of TDW as of and for the years ended December 31, 2013 and 2012 follows:
2013
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Revenue
Net income
Dividend income
2,712,849,152
352,739,146
800,601,789
655,426,694
441,448,980
87,749,151
2012
2,327,618,022
280,546,851
865,495,727
537,121,368
335,714,286
–
The share of the Group in the net income of TDW for the years ended December 31, 2013 and 2012 amounted to
Kenh Dong Water Supply Joint Stock Company
On May 17, 2012, the Parent Company thru KDWH entered into a Share Purchase Agreement (SPA) with CII for the purchase of 47.35% of CII’s interest in KDW. The payment for the shares will be done in two tranches, with additional contingent considerations subject to the fulfillment of certain conditions precedent for a total purchase price of
(VND44.49 billion) (Note 18). The share purchase transaction was completed on July 20, 2012 warranting KDWH to have significant influence in KDW.
In 2013, KDW finalized its purchase price allocation which resulted in a final notional goodwill amounting to
Consolidated Statement of Comprehensive Income as indemnification for the damages resulting from the delay in the start of the bulk water operations of KDW.
The financial information of KDW as of and for the year ended December 31, 2013 follows:
2013
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Revenue
Net income
2,383,454,458
522,500,644
1,115,526,863
150,828,564
161,879,620
2012
1,576,809,300
158,033,354
859,813,045
153,435,835
89,259,421
The share of the Group in the net income of KDW for the years ended December 31, 2013 and 2012 amounted to
The Group’s share in net income from its investments in TDW and KDW resulted from concession arrangement with
People’s Committee of Ho Chi Minh City (the Grantor). These concession arrangements are accounted under the
Financial Asset model of IFRIC 12 as its associates have an unconditional contractual right to receive fixed and determinable amount of payment for its construction services at the direction of the Grantor.
Saigon Water Infrastructure Corporation (Saigon Water)
On October 8, 2013, the Parent Company thru MWSAH entered into an Investment Agreement for the acquisition of
(VND310.45 billion). The share subscription transaction was completed on October 8, 2013 warranting MWSAH to have significant influence in Saigon Water.
acquisition of shares of stock in Saigon Water by the group as of December 31, 2013.
109

The financial information of Saigon Water as of and for the year ended December 31, 2013 follows:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Revenue
Net income
771,029,593
113,505,825
165,280,665
74,697,010
3,241,118
The share of the Group in the consolidated net income of Saigon Water for the period October to December 31, 2013
The reconciliation of the net assets of the associates to the carrying amounts of the Investments in associates recognized in the consolidated financial statements is as follow:
TDW
2013
KDWH Saigon Water Total
Net assets of associate attributable to common shareholders
Proportionate ownership in the associate
Share in net identifiable assets
Notional Goodwill
49.00%
785,628,908
1,413,891,653
47.35%
484,557,025
1,378,777,432
31.47%
356,509,662
288,842,185
1,626,695,595
3,081,511,270
Net assets of associate attributable to common shareholders
Proportionate ownership in the associate
Share in net identifiable assets
Notional Goodwill
TDW
49.00%
515,626,923
1,413,891,653
2012
KDWH
47.35%
336,557,124
1,378,777,432
Total
852,184,047
2,792,669,085
14.
Other Noncurrent Assets
This account consists of:
Receivable from BWC - net of current portion (Note 6)
Deposits
Receivable from Ayala Multi-Purpose Cooperative (AMPC)
(Note 23)
Deferred FCDA (Note 18)
Advances to Carmen Development Fund
Miscellaneous
2013
181,006,265
66,072,709
55,407,245
35,000,000
28,381,601
2012
128,365,246
50,672,193
–
35,000,000
50,501,993
Deposits pertain to Group’s advance payments for the guarantee deposits in Manila Electric Company (MERALCO) for the electric connection, its related deferred charges, deposits to Department of Environment and Natural
Resources (DENR), deposits for land acquisitions and right of way and water banking rights.
CMWD entered into a 30-year Right of Way Agreement with certain individuals for an easement of right of way of a portion of their lands wherein the pipelines and other appurtenances between the weir and water treatment plant of
CMWD will pass through. For the water banking rights, the National Water Resources Board (NWRB) approved the assignment of Water Permit No. 16241 from Central Equity Ventures Inc. (now Stateland Inc.) to MW Consortium.
The NWRB likewise approved the change of the purpose of Water Permit No. 16241 from Domestic to Municipal. It is the intention of MW Consortium to allow CMWD to use the said water permit for its project.
Receivable from AMPC pertains to the term loan and credit line facility agreement as discussed in Note 23.
Deferred FCDA refers to the unrecovered amounts from (amounts for refund to) customers for realized losses (gains) from payments of foreign loans based on the difference between the drawdown or rebased rate versus the closing rate at payment date. This account also covers the unrealized gains/losses from loan valuations, accrual of interest and accretion of transaction and related costs.
Advances to Carmen Development Fund pertain to the advance payment for the permit to extract water at Carmen property in Cebu.
110
MANILA WATER ANNUAL REPORT 2013

The financial information of Saigon Water as of and for the year ended December 31, 2013 follows:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Revenue
Net income
771,029,593
113,505,825
165,280,665
74,697,010
3,241,118
The share of the Group in the consolidated net income of Saigon Water for the period October to December 31, 2013
The reconciliation of the net assets of the associates to the carrying amounts of the Investments in associates recognized in the consolidated financial statements is as follow:
TDW
2013
KDWH Saigon Water Total
Net assets of associate attributable to common shareholders
Proportionate ownership in the associate
Share in net identifiable assets
Notional Goodwill
49.00%
785,628,908
1,413,891,653
47.35%
484,557,025
1,378,777,432
31.47%
356,509,662
288,842,185
1,626,695,595
3,081,511,270
Net assets of associate attributable to common shareholders
Proportionate ownership in the associate
Share in net identifiable assets
Notional Goodwill
TDW
49.00%
515,626,923
1,413,891,653
2012
KDWH
47.35%
336,557,124
1,378,777,432
Total
852,184,047
2,792,669,085
14.
Other Noncurrent Assets
This account consists of:
Receivable from BWC - net of current portion (Note 6)
Deposits
Receivable from Ayala Multi-Purpose Cooperative (AMPC)
(Note 23)
Deferred FCDA (Note 18)
Advances to Carmen Development Fund
Miscellaneous
2013
181,006,265
66,072,709
55,407,245
35,000,000
28,381,601
2012
128,365,246
50,672,193
–
35,000,000
50,501,993
Deposits pertain to Group’s advance payments for the guarantee deposits in Manila Electric Company (MERALCO) for the electric connection, its related deferred charges, deposits to Department of Environment and Natural
Resources (DENR), deposits for land acquisitions and right of way and water banking rights.
CMWD entered into a 30-year Right of Way Agreement with certain individuals for an easement of right of way of a portion of their lands wherein the pipelines and other appurtenances between the weir and water treatment plant of
CMWD will pass through. For the water banking rights, the National Water Resources Board (NWRB) approved the assignment of Water Permit No. 16241 from Central Equity Ventures Inc. (now Stateland Inc.) to MW Consortium.
The NWRB likewise approved the change of the purpose of Water Permit No. 16241 from Domestic to Municipal. It is the intention of MW Consortium to allow CMWD to use the said water permit for its project.
Receivable from AMPC pertains to the term loan and credit line facility agreement as discussed in Note 23.
Deferred FCDA refers to the unrecovered amounts from (amounts for refund to) customers for realized losses (gains) from payments of foreign loans based on the difference between the drawdown or rebased rate versus the closing rate at payment date. This account also covers the unrealized gains/losses from loan valuations, accrual of interest and accretion of transaction and related costs.
Advances to Carmen Development Fund pertain to the advance payment for the permit to extract water at Carmen property in Cebu.
15.
Accounts and Other Payables
This account consists of:
Trade payables
Accrued expenses
Salaries, wages and employee benefits
Management and professional fees
Utilities
Collection fees
Repairs and maintenance
Wastewater costs
Occupancy costs
Other accrued expenses
Interest payable
Contracts payable
Advances from SAWACO
Others
2013
300,974,081
227,850,213
146,159,674
144,045,180
65,533,933
29,740,325
21,058,936
70,353,048
333,188,939
216,144,886
719,292
31,258,708
2012
207,813,346
69,061,381
72,232,680
46,578,150
57,019,386
37,869,222
21,227,891
256,809,036
305,754,632
–
719,292
59,233,093
Trade payables and accrued expenses are non-interest-bearing and are normally settled on 15 to 60-day terms.
Other payables are non-interest bearing and are normally settled within one year.
Advances from SAWACO pertain to the advance payments made by SAWACO to the Parent Company to facilitate the start-up and operating expenses related to the management contract entered with SAWACO (see Note 24).
These are offset against the progress billings made by the Parent Company.
Contracts payable pertains to the accrual of expenses which requires the Group to pay the contractor upon project completion. Contracts payable are due and demandable and are normally settled within one year.
Other accrued expenses include accruals for advertising, insurance, transportation and travel, postage, telephone and supplies and other expenses.
16.
Long-term Debt
This account consists of:
United States Dollar (USD) loans
NEXI Loan
EIB loan
Second IFC loan
Japanese Yen (JPY) loans
LBP loan
EIB loan
First IFC loan
Philippine Peso (PHP) loans
P
Less current portion
1st
P 2nd
P 1st
P 2nd
2013 2012
579,093,075
434,376,522
1,213,261,962
1,031,618,857
538,946,233
687,456,303
558,374,094
1,529,826,026
1,506,556,890
741,541,206
9,856,603,757
4,970,576,622
–
–
537,080,860
462,097,197
496,296,733
494,455,297
72,836,625
26,251,679,104
(1,890,774,750)
9,889,213,391
–
1,366,803,938
1,072,186,679
–
496,426,548
–
302,510,910
74,415,593
24,071,006,089
(4,264,858,738)
P =19,806,147,351
111

Unamortized debt discounts and issuance of the Group’s long-term debt as of December 31, 2013 and 2012 follow:
2013
USD loans
Yen loans
Peso loans
62,767,243
88,897,927
2012
98,625,877
78,170,778
The rollforward analysis of unamortized debt discounts and issuance costs of long-term debt follows:
2013
Balance at beginning of the year
Additions
Amortization (Note 19)
Balance at end of the year
50,007,715
(134,167,263)
2012
159,373,710
(122,545,450)
Parent Company
NEXI Loan
On October 21, 2010, the Parent Company entered into a term loan agreement (NEXI Loan) amounting to
US$150.00 million to partially finance capital expenditures within the East Zone. The loan has a tenor of 10 years and is financed by a syndicate of four banks - ING N.V Tokyo, Mizuho Corporate Bank, Ltd., The Bank of Tokyo-Mitsubishi
UFJ Ltd. and Sumitomo Mitsui Banking Corporation and is insured by Nippon Export and Investment Insurance. First, second and third drawdowns of the loan amounted to US$84.00 million, US$30.00 million and US$36.00 million, respectively. The carrying value of the loan as of December 31, 2013 and 2012 amounted to US$125.34 million and
US$142.40 million, respectively.
EIB Loan
On June 20, 2007, the Parent Company entered into a Finance Contract (the “EIB Loan”) with the European
Investment Bank (EIB) to partially finance the capital expenditures of the Parent Company from 2007 to 2010, as specified under Schedule 1 of the Finance Contract. The loan, in the aggregate principal amount of
EUR€60.00 million, having a term of 10 years, is subject to the Relevant Interbank Rate plus a spread to be determined by EIB, and may be drawn in either fixed-rate or floating-rate tranches. The loan has two tranches as described below:


Sub-Credit A: In an amount of EUR€40.00 million to be disbursed in US Dollars and Japanese Yen payable via semi-annual installments after the 2 1/2 grace period. This loan tranche is guaranteed against all commercial risks by a consortium of international commercial banks composed of ING Bank, Development Bank of Singapore and Sumitomo-Mitsui Banking Corporation under a Guaranty Facility Agreement; and
Sub-Credit B: In an amount of EUR€20.00 million to be disbursed in Japanese Yen payable via semi-annual installments after the 2 1/2 grace period. This loan tranche is guaranteed against all commercial risks by ING
Bank under a Guaranty Facility Agreement.
On May 21, 2012, the Sub-Credit A Guarantee Facility Agreement was amended to extend the effectivity of the guarantee. Two of the original guarantors, ING Bank and Sumitomo Mitsui Banking Corporation, agreed to extend the guarantee by another five years towards the maturity of the loan.
On July 30, 2013, the Sub-Credit B Guarantee Facility Agreement was amended to extend the effectivity of the guarantee. The original guarantor, ING Bank, agreed to extend the guarantee by another five years towards the maturity of the loan.
The carrying value of the EIB loan amounted to JPY2,433.64 million and US$13.04 million as of December 31, 2013 and JPY3,115.23 million and US$16.75 million as of December 31, 2012.
IFC Loan
On March 28, 2003, the Parent Company entered into a loan agreement with IFC (the “First IFC Loan”) to partially finance the Parent Company’s investment program from 2002-2005 to expand water supply and sanitation services, improvement on the existing facilities of the Parent Company, and concession fee payments. The First IFC Loan was made available in Japanese Yen in the aggregate principal amount of JP¥3,591.60 million equivalent to
US$30.00 million and shall be payable in 25 semi-annual installments, within 12 years starting on July 15, 2006. As of December 31, 2013 and 2012, the carrying value of the loan amounted to JP¥1,271.40 million and
JP¥1,549.07 million, respectively.
On May 31, 2004, the Parent Company entered into a loan agreement with IFC (the “Second IFC Loan”) composed of a regular loan in the amount of up to US$20.00 million and a standby loan in the amount of up to US$10.00 million to finance the investment program from 2004 to 2007 to expand water supply and sanitation services, improvement of
112
MANILA WATER ANNUAL REPORT 2013

Unamortized debt discounts and issuance of the Group’s long-term debt as of December 31, 2013 and 2012 follow:
2013
USD loans
Yen loans
Peso loans
62,767,243
88,897,927
2012
98,625,877
78,170,778
The rollforward analysis of unamortized debt discounts and issuance costs of long-term debt follows:
2013
Balance at beginning of the year
Additions
Amortization (Note 19)
Balance at end of the year
50,007,715
(134,167,263)
2012
159,373,710
(122,545,450)
Parent Company
NEXI Loan
On October 21, 2010, the Parent Company entered into a term loan agreement (NEXI Loan) amounting to
US$150.00 million to partially finance capital expenditures within the East Zone. The loan has a tenor of 10 years and is financed by a syndicate of four banks - ING N.V Tokyo, Mizuho Corporate Bank, Ltd., The Bank of Tokyo-Mitsubishi
UFJ Ltd. and Sumitomo Mitsui Banking Corporation and is insured by Nippon Export and Investment Insurance. First, second and third drawdowns of the loan amounted to US$84.00 million, US$30.00 million and US$36.00 million, respectively. The carrying value of the loan as of December 31, 2013 and 2012 amounted to US$125.34 million and
US$142.40 million, respectively.
EIB Loan
On June 20, 2007, the Parent Company entered into a Finance Contract (the “EIB Loan”) with the European
Investment Bank (EIB) to partially finance the capital expenditures of the Parent Company from 2007 to 2010, as specified under Schedule 1 of the Finance Contract. The loan, in the aggregate principal amount of
EUR€60.00 million, having a term of 10 years, is subject to the Relevant Interbank Rate plus a spread to be determined by EIB, and may be drawn in either fixed-rate or floating-rate tranches. The loan has two tranches as described below:


Sub-Credit A: In an amount of EUR€40.00 million to be disbursed in US Dollars and Japanese Yen payable via semi-annual installments after the 2 1/2 grace period. This loan tranche is guaranteed against all commercial risks by a consortium of international commercial banks composed of ING Bank, Development Bank of Singapore and Sumitomo-Mitsui Banking Corporation under a Guaranty Facility Agreement; and
Sub-Credit B: In an amount of EUR€20.00 million to be disbursed in Japanese Yen payable via semi-annual installments after the 2 1/2 grace period. This loan tranche is guaranteed against all commercial risks by ING
Bank under a Guaranty Facility Agreement.
On May 21, 2012, the Sub-Credit A Guarantee Facility Agreement was amended to extend the effectivity of the guarantee. Two of the original guarantors, ING Bank and Sumitomo Mitsui Banking Corporation, agreed to extend the guarantee by another five years towards the maturity of the loan.
On July 30, 2013, the Sub-Credit B Guarantee Facility Agreement was amended to extend the effectivity of the guarantee. The original guarantor, ING Bank, agreed to extend the guarantee by another five years towards the maturity of the loan.
The carrying value of the EIB loan amounted to JPY2,433.64 million and US$13.04 million as of December 31, 2013 and JPY3,115.23 million and US$16.75 million as of December 31, 2012.
IFC Loan
On March 28, 2003, the Parent Company entered into a loan agreement with IFC (the “First IFC Loan”) to partially finance the Parent Company’s investment program from 2002-2005 to expand water supply and sanitation services, improvement on the existing facilities of the Parent Company, and concession fee payments. The First IFC Loan was made available in Japanese Yen in the aggregate principal amount of JP¥3,591.60 million equivalent to
US$30.00 million and shall be payable in 25 semi-annual installments, within 12 years starting on July 15, 2006. As of December 31, 2013 and 2012, the carrying value of the loan amounted to JP¥1,271.40 million and
JP¥1,549.07 million, respectively.
On May 31, 2004, the Parent Company entered into a loan agreement with IFC (the “Second IFC Loan”) composed of a regular loan in the amount of up to US$20.00 million and a standby loan in the amount of up to US$10.00 million to finance the investment program from 2004 to 2007 to expand water supply and sanitation services, improvement of existing facilities of the Parent Company, and concession fee payments. This loan was subsequently amended on
November 22, 2006, when the Parent Company executed the Amended and Restated Loan Agreement for the restructuring of the Second IFC Loan. The terms of the second loan were amended to a loan in the aggregate amount of up to US$30.00 million, no part of which shall consist of a standby loan. On December 12, 2008, the
Parent Company made a full drawdown on the said facility. As of December 31, 2013 and 2012, outstanding balance of the Second IFC loan amounted to US$9.78 million and US$13.60 million, respectively.
On July 31, 2013, the Parent Company entered into a loan agreement with IFC (the “Fourth” Omnibus Agreement) in the amount of up to $100.00 million for financing the Projects in accordance with the provisions of the Agreement.
The loan has a term of 18 years, payable in semi-annual installments after the grace period. As of December 31,
2013, no drawdown has been made from the facility.
LBP Loan
On October 20, 2005, the Parent Company entered into a Subsidiary Loan Agreement with Land Bank of the
Philippines (LBP Loan) to finance the improvement of the sewerage and sanitation conditions in the East Zone. The loan has a term of 17 years, and was made available in Japanese Yen in the aggregate principal amount of
JPY6.59 billion payable via semi-annual installments after the 5-year grace period. The Parent Company made its last drawdown on October 26, 2012.
The total drawn amount for the loan is JPY3.99 billion. As of December 31, 2013 and 2012, the outstanding balance of the LBP loan amounted to JP¥2,862.14 million and JPY3,195.79 million, respectively.
On September 25, 2012, the Parent Company entered into a Subsidiary Loan Agreement with Land Bank of the
Philippines under the Metro Manila Wastewater Management Project (MWMP) with the World Bank. The MWMP aims to improve wastewater services in Metro Manila through increased wastewater collection and treatment. The loan has a term of twenty-five (25) years, and was made available in US Dollars in the aggregated principal amount of
US$137.5 million via semi-annual installments after the seven-year grace period. As of December 31, 2013, the
Parent Company has not made any drawdown from this facility.
Fixed Rate Corporate Notes
(“Ten-Year FXCN Note”) from the issue date which is both payable quarterly. The Parent Company may repay the whole and not a part only of the Ten-Year FXCN Notes on the 7th anniversary of the drawdown date of such FXCN
Note or on any FXCN interest payment date thereafter. The amount payable in respect to such prepayment shall be calculated as 102% of the principal amount being prepaid and accrued interest on the prepayment date. The carrying
On August 16, 2013, the Company entered into a Credit Facility Agreement (the "P5.00 billion loan") with Metropolitan
Bank and Trust Company (Metrobank) having a fixed nominal rate of 4.42% and with a term of 7 years from the issue date which is payable annually. The Company may repay the whole and not a part only of the loan starting on the 3rd anniversary of the drawdown date of such loan or on any interest payment date thereafter.
The amount payable in respect to such prepayment shall be calculated as 102% of the principal amount being prepaid and accrued interest if such prepayment occurs on or after the 3rd anniversary but before the 4th anniversary of the drawdown date. The amount payable in respect to such prepayment shall be calculated as 101.5% of the principal amount being prepaid and accrued interest if such prepayment occurs on or after the 4th anniversary but before the 5th anniversary of the drawdown date. The amount payable in respect to such prepayment shall be calculated as 101% of the principal amount being prepaid and accrued interest if such prepayment occurs on or after the 5th anniversary but before the 6th anniversary of the drawdown date. The amount payable in respect to such prepayment shall be calculated as 100.5% of the principal amount being prepaid and accrued interest if such prepayment occurs on or after the 6th anniversary but before the 7th anniversary of the drawdown date. The carrying
5 banks and 4 financial institutions to finance the capital expenditures of the Parent Company pursuant to the
 Tranche 1: 7-year term loan amounting to P the end of the 7th year; and
 Tranche 2: 7-year term loan, with a put option at the end of the 5th year, amounting to P
Tranche 2 Loan). Such loan shall be subject to a bullet repayment at the end of the 5th year if the lenders
113

exercise their put option; If the put option is not exercised, the loan will be subject to a yearly amortization of
3 banks and a financial institution to finance the capital expenditures of the Parent Company pursuant to the
 Tranche 1: 7-year term loan amounting to P yearly amortization of 1% of the Tranche 1 Loan at the end of the 5th and 6th years, and bullet repayment of the balance at the end of the 7th year; and
 Tranche 2: 7-year term loan, with a put option at the end of the 5th year, amounting to P
Tranche 2 Loan). Such loan shall be subject to a bullet repayment at the end of the 5th year if the lenders exercise their put option. If the put option is not exercised, the loan will be subject to a yearly amortization of 1% of the Tranche 2 Loan at the end of the 5th and 6th years, and bullet repayment of the balance at the end of the
7th year.
years from the issue date with a fixed interest rate equivalent to 8.25% payable quarterly. Prior to maturity, the Parent
Company may redeem in whole, and not in part only, the relevant outstanding bonds on the 12th interest payment date. The amount payable to the bondholders in respect of such redemptions shall be calculated based on the principal amount of the bonds being redeemed, as the sum of 102% of the principal amount and accrued interest on the bonds on the optional redemption date.
On September 2, 2011, the Parent Company’s BOD approved the early redemption of its the principal amount and accrued interest computed up to October 23, 2011 (“Optional Redemption Date”) to bondholders as of October 19, 2011 (“Record Date”). As the Optional Redemption Date falls on a non-business day, payment to each bondholder was made available on the next business day, October 24, 2011. Upon payment, the listing of the bonds on the Philippine Dealing and Exchange Corporation (PDEx) was terminated. The difference
On July 17, 2008, the Parent Company, together with all of its Lenders signed an Omnibus Amendment Agreement and Intercreditor Agreement and these agreements became effective on September 30, 2008.
Prior to the execution of the Omnibus Amendment Agreement, the obligations of the Parent Company to pay amounts due and owing or committed to be repaid to the lenders under the existing facility agreements were secured by
Assignments of Interests by Way of Security executed by the Parent Company in favor of a trustee acting on behalf of the lenders. The Assignments were also subject to the provisions of the Amended and Restated Intercreditor
Agreement dated March 1, 2004 and its Amendatory Agreement dated December 15, 2005 executed by the Parent
Company, the lenders and their appointed trustee.
Under the Omnibus Amendment Agreement, the lenders effectively released the Parent Company from the assignment of its present and future fixed assets, receivables and present and future bank accounts, all the Project
Documents (except for the Agreement, Technical Corrections Agreement and the Department of Finance Undertaking
Letter), all insurance policies where the Parent Company is the beneficiary and performance bonds posted in its favor by contractors or suppliers.
In consideration for the release of the assignment of the above-mentioned assets, the Parent Company agreed not to create, assume, incur, permit or suffer to exist, any mortgage, lien, pledge, security interest, charge, encumbrance or other preferential arrangement of any kind, upon or with respect to any of its properties or assets, whether now owned or hereafter acquired, or upon or with respect to any right to receive income, subject only to some legal exceptions.
The lenders shall continue to enjoy their rights and privileges as Concessionaire Lenders (as defined under the
Agreement), which include the right to appoint a qualified replacement operator and the right to receive payments and/or other consideration pursuant to the Agreement in case of a default of either the Parent Company or MWSS.
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MANILA WATER ANNUAL REPORT 2013

exercise their put option; If the put option is not exercised, the loan will be subject to a yearly amortization of
3 banks and a financial institution to finance the capital expenditures of the Parent Company pursuant to the
 Tranche 1: 7-year term loan amounting to P yearly amortization of 1% of the Tranche 1 Loan at the end of the 5th and 6th years, and bullet repayment of the balance at the end of the 7th year; and
 Tranche 2: 7-year term loan, with a put option at the end of the 5th year, amounting to P
Tranche 2 Loan). Such loan shall be subject to a bullet repayment at the end of the 5th year if the lenders exercise their put option. If the put option is not exercised, the loan will be subject to a yearly amortization of 1% of the Tranche 2 Loan at the end of the 5th and 6th years, and bullet repayment of the balance at the end of the
7th year.
years from the issue date with a fixed interest rate equivalent to 8.25% payable quarterly. Prior to maturity, the Parent
Company may redeem in whole, and not in part only, the relevant outstanding bonds on the 12th interest payment date. The amount payable to the bondholders in respect of such redemptions shall be calculated based on the principal amount of the bonds being redeemed, as the sum of 102% of the principal amount and accrued interest on the bonds on the optional redemption date.
On September 2, 2011, the Parent Company’s BOD approved the early redemption of its the principal amount and accrued interest computed up to October 23, 2011 (“Optional Redemption Date”) to bondholders as of October 19, 2011 (“Record Date”). As the Optional Redemption Date falls on a non-business day, payment to each bondholder was made available on the next business day, October 24, 2011. Upon payment, the listing of the bonds on the Philippine Dealing and Exchange Corporation (PDEx) was terminated. The difference
On July 17, 2008, the Parent Company, together with all of its Lenders signed an Omnibus Amendment Agreement and Intercreditor Agreement and these agreements became effective on September 30, 2008.
Prior to the execution of the Omnibus Amendment Agreement, the obligations of the Parent Company to pay amounts due and owing or committed to be repaid to the lenders under the existing facility agreements were secured by
Assignments of Interests by Way of Security executed by the Parent Company in favor of a trustee acting on behalf of the lenders. The Assignments were also subject to the provisions of the Amended and Restated Intercreditor
Agreement dated March 1, 2004 and its Amendatory Agreement dated December 15, 2005 executed by the Parent
Company, the lenders and their appointed trustee.
Under the Omnibus Amendment Agreement, the lenders effectively released the Parent Company from the assignment of its present and future fixed assets, receivables and present and future bank accounts, all the Project
Documents (except for the Agreement, Technical Corrections Agreement and the Department of Finance Undertaking
Letter), all insurance policies where the Parent Company is the beneficiary and performance bonds posted in its favor by contractors or suppliers.
In consideration for the release of the assignment of the above-mentioned assets, the Parent Company agreed not to create, assume, incur, permit or suffer to exist, any mortgage, lien, pledge, security interest, charge, encumbrance or other preferential arrangement of any kind, upon or with respect to any of its properties or assets, whether now owned or hereafter acquired, or upon or with respect to any right to receive income, subject only to some legal exceptions.
The lenders shall continue to enjoy their rights and privileges as Concessionaire Lenders (as defined under the
Agreement), which include the right to appoint a qualified replacement operator and the right to receive payments and/or other consideration pursuant to the Agreement in case of a default of either the Parent Company or MWSS.
Currently, all lenders of the Parent Company are considered Concessionaire Lenders and are on pari passu status with one another.
CMWD
On December 19, 2013, the CMWD entered into an omnibus loan and security agreement (the Agreement) with
Development Bank of the Philippines (DBP) to partially finance the construction works in relation to its bulk water supply project in Cebu, Philippines. The lender has agreed to extend a loan facility in the aggregate principal amount
LAWC
On September 7, 2010, LAWC entered into a loan agreement with two local banks for the financing of its construction, operation, maintenance and expansion of facilities in its servicing area. Pursuant to the loan agreement, the lenders consecutive equal quarterly installments starting August 2013. The first and second drawdowns from the loan were
On April 29, 2013, the Company entered into a loan agreement with Development Bank of the Philippines (DBP) to partially finance the modernization and expansion of the water network system and water supply facilities in Binan,
Sta. Rosa and Cabuyao, Laguna. Under the agreement, the lender has agreed to provide a loan to the borrower bearing an effective interest rate of 7.25%. The first and second drawdowns were made in July 2013 and December
BIWC
On July 29, 2011, BIWC entered into an omnibus loan and security agreement (the Agreement) with the DBP and
Security Bank Corporation (SBC) to finance the construction, operation, maintenance and expansion of facilities for the fulfillment of certain service targets for water supply and waste water services for its service area under its concession agreement with TIEZA, as well as the operation and maintenance of the completed drainage system. The period. The loan shall be available in three sub-tranches, as follows:
 Sub-tranche 1A, the loan in the amount of P
Water Revolving Fund (PWRF)
 Sub-tranche 1B, the loan in the amount of P
 Sub-tranche 1C, the loan in the amount of P internally-generated funds
The Agreement provided BIWC the option to borrow additional loans from the lenders. On November 14, 2012, BIWC entered into the second omnibus loan and security agreement with DBP and SBC. The agreed aggregate principal of
 Sub-tranche 2A, the loan in the amount of P
Water Revolving Fund (PWRF)
 Sub-tranche 2B, the loan in the amount of P
 Sub-tranche 2C, the loan in the amount of P internally-generated funds.
115

Compliance with loan covenants
All these loan agreements provide for certain covenants which must be complied by the Parent Company, LAWC,
BIWC and CMWD, which include compliance with certain financial ratios such as the debt-to-equity and debt-servicecoverage ratios. As of December 31, 2013 and 2012, the Parent Company, LAWC, BIWC and CMWD were in compliance with all the loan covenants required by the creditors.
17.
Retirement Plan
The Parent Company has a funded, noncontributory, tax-qualified defined benefit pension plan covering substantially all of its regular employees. The benefits are based on current salaries and years of service and compensation as of the last year of employment. The latest actuarial valuation was made on December 31, 2013.
Under the existing regulatory framework, Republic Act 7641 requires a provision for retirement pay to qualified private sector employees in the absence of any retirement plan in the entity, provided however that the employee’s retirement benefits under any collective bargaining and other agreements shall not be less than those provided under law. The law does not require minimum funding for the plan.
The plan is covered by a retirement fund administered by trustee banks, which are under the supervision of the
Retirement and Welfare Plan Committee. The Committee, which is composed of six (6) members appointed by the
Board of Directors of the Group, defines the investment strategy of the fund and regularly reviews the strategy based on market developments and changes in the plan structure. When defining the investment strategy, it takes into account the plan’s objectives, benefit obligations and risk capacity. The Committee reviews, on a quarterly basis, the performance of the funds managed by trustee banks.
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MANILA WATER ANNUAL REPORT 2013

Changes in net defined benefit liability of funded funds are as follows:
At January 1
Present value of defined benefit obligation
Fair value of plan assets (251,366,000)
Net benefit cost in consolidated statement of income
Current service cost
–
Net benefit cost in consolidated statement of income
At January 1
Present value of defined benefit obligation
Fair value of plan assets (232,267,400)
Current service cost
–
Subtotal Benefits paid
(16,813,900)
Net benefit cost in consolidated statement of income
At January 1
Present value of defined benefit obligation
Fair value of plan assets (230,854,600)
Current service cost
–
Net interest
(14,233,200)
Net interest
(16,813,900)
Net interest
(18,946,000)
Subtotal Benefits paid
(14,233,200)
Subtotal Benefits paid
(18,946,000)
21,306,900
11,515,800
10,733,500
2013
Settlements
Remeasurements in other comprehensive income
Return on plan assets
(excluding amount included in net interest)
Actuarial changes arising from changes in demographic assumptions
Actuarial changes arising from changes in financial assumptions
Changes in the effect of asset ceiling Subtotal
Contribution by employer
At December
31
– (13,942,600) – –
2012
Settlements
Remeasurements in other comprehensive income
Return on plan assets
(excluding amount included in net interest)
Actuarial changes arising from changes in demographic assumptions
Actuarial changes rising from changes in financial assumptions
Changes in the effect of asset ceiling
191,448,800
P –
(7,749,300) – – –
–
P =783,835,800
(13,942,600) (144,000,000) (402,234,900)
P (P P
Subtotal
Contribution by employer
At December
31
P =633,390,300
(7,749,300) (197,500,000) (251,366,000)
P (P P
At January 1, 2012
Settlements
Remeasurements in other comprehensive income
Return on plan assets
(excluding amount included in net interest)
Actuarial changes arising from changes in demographic assumptions
Actuarial changes rising from changes in financial assumptions
Changes in the effect of asset ceiling
–
P –
6,799,700
(P =12,091,900)
– –
(P =12,091,900)
P –
–
Subtotal
6,799,700
Contribution by employer
P
At December
31
P =655,671,400
– (232,267,400)
=423,404,000
117

The fair value of net plan assets by each class is as follows:
31 December
2013
Assets
Cash and cash equivalents
Debt investments
Equity investments
Interest receivable
158,818,454
63,127,421
1,256,680
403,851,852
Liabilities
Accrued trust fees
Unamortized tax on premium
Provision for probable losses
395,777
1,211,175
10,000
1,616,952
Fair value of plan assets
31 December
2012
205,702,580
45,432,476
1,872,062
253,767,008
602,882
1,669,196
128,930
2,401,008
January 1
2012
175,943,023
41,829,256
737,694
233,861,394
421,783
–
1,172,211
1,593,994
All equity and debt investments held have quoted prices in active markets. The remaining plan assets do not have quoted market prices in active markets.
The plan assets have diverse investments and do not have any concentration risk.
The cost of defined benefit pension plans and other post-employment medical benefits, as well as the present value of the pension obligation are determined using actuarial valuations. The actuarial valuations involve making various assumptions. The principal assumptions used in determining pension and post-employment medical benefit obligations for the defined benefit plans are shown below:
Discount Rate
Salary increase rate
2013
5.25%
7.00%
2012
6.50%
7.00%
2011
7.25%
8.00%
The overall expected rate of return on assets is determined based on the market expectation prevailing on that date, applicable to the period over which the obligation is settled.
The sensitivity analysis below has been determined based on reasonably possible changes of each significant assumption on the defined benefit obligation as of the end of the reporting period, assuming all other assumptions were held constant:
Discount Rate
Salary increase rate
Increase
(Decrease)
1.00%
(1.00%)
1.00%
(1.00%)
Effect on defined benefit obligation
37,909,967
(31,699,953)
Shown below is the maturity analysis of the undiscounted benefit payments:
Less than 1 year
More than 1 year to 5 years
More than 5 years to 10 years
Expected benefit payments
252,129,000
609,793,200
The average duration of the defined benefit obligation at the end of the reporting period is 22.80 years and
21.08 years as of December 31, 2013 and 2012, respectively.
The asset allocation of the plan is set and reviewed from time to time by the Committee taking into account the membership profile and the liquidity requirements of the Plan. This also considers the expected benefit cash flows to be matched with asset durations.
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MANILA WATER ANNUAL REPORT 2013

The fair value of net plan assets by each class is as follows:
31 December
2013
Assets
Cash and cash equivalents
Debt investments
Equity investments
Interest receivable
158,818,454
63,127,421
1,256,680
403,851,852
Liabilities
Accrued trust fees
Unamortized tax on premium
Provision for probable losses
395,777
1,211,175
10,000
1,616,952
Fair value of plan assets
31 December
2012
205,702,580
45,432,476
1,872,062
253,767,008
602,882
1,669,196
128,930
2,401,008
January 1
2012
175,943,023
41,829,256
737,694
233,861,394
421,783
–
1,172,211
1,593,994
All equity and debt investments held have quoted prices in active markets. The remaining plan assets do not have quoted market prices in active markets.
The plan assets have diverse investments and do not have any concentration risk.
The cost of defined benefit pension plans and other post-employment medical benefits, as well as the present value of the pension obligation are determined using actuarial valuations. The actuarial valuations involve making various assumptions. The principal assumptions used in determining pension and post-employment medical benefit obligations for the defined benefit plans are shown below:
Discount Rate
Salary increase rate
2013
5.25%
7.00%
2012
6.50%
7.00%
2011
7.25%
8.00%
The overall expected rate of return on assets is determined based on the market expectation prevailing on that date, applicable to the period over which the obligation is settled.
The sensitivity analysis below has been determined based on reasonably possible changes of each significant assumption on the defined benefit obligation as of the end of the reporting period, assuming all other assumptions were held constant:
Discount Rate
Salary increase rate
Increase
(Decrease)
1.00%
(1.00%)
1.00%
(1.00%)
Effect on defined benefit obligation
37,909,967
(31,699,953)
Shown below is the maturity analysis of the undiscounted benefit payments:
Less than 1 year
More than 1 year to 5 years
More than 5 years to 10 years
Expected benefit payments
252,129,000
609,793,200
The average duration of the defined benefit obligation at the end of the reporting period is 22.80 years and
21.08 years as of December 31, 2013 and 2012, respectively.
The asset allocation of the plan is set and reviewed from time to time by the Committee taking into account the membership profile and the liquidity requirements of the Plan. This also considers the expected benefit cash flows to be matched with asset durations.
Contributions to the plan are recommended by the Committee and approved by the Company, in consideration of the pension plan in 2014 based on the latest actuarial valuation report.
Manpower restructuring program
The Parent Company implemented an early retirement program on September 1, 2012. More than 400 employees, verified by a consultant to be holding redundant, excess or non-core positions were covered by the involuntary retirement program. The program included employees who were ill and were no longer capable of productive employment. The retirement program aimed to restructure the organization to address the growing and changing separated.
18.
Other Noncurrent Liabilities
Other noncurrent liabilities consist of:
Customers’ guaranty deposits and other deposits (Note 28)
Deferred credits
Contingent consideration (Note 13)
Deferred FCDA (Note 14)
2013
338,857,711
93,835,323
–
2012
306,066,398
90,218,108
544,440,798
Customers’ guaranty deposits and other deposits pertain to the deposits paid by the Group’s customers for the set-up of new connections which will be refunded to the customers upon termination of the customers’ water service
December 31, 2013 and 2012, respectively.
The Group recognized income arising from liquidation of advanced service connection costs amounting to
Deferred credits pertain to the unamortized discounts of the customers’ guaranty deposits. The rollforward analysis of the deferred credits follows:
2013 2012
Balance at beginning of year
Additions
Amortization (Note 19)
Balance at end of year
38,958,989
(6,167,676)
17,677,172
(5,100,313)
Contingent consideration is included in the purchase price of KDW (see Note 13).
Deferred FCDA refers to the unrecovered amounts from (amounts for refund to) customers for realized losses (gains) from payments of foreign loans based on the difference between the drawdown or rebased rate versus the closing rate at payment date. This account also covers the unrealized gains/losses from loan valuations, accrual of interest and accretion of transaction and related costs.
119

19.
Operating Expenses, Interest Income, Interest Expense and Other Operating Income
Operating expenses consist of:
2013 2012
Salaries, wages and employee benefits
(Notes 17, 21 and 23)
Provision for probable losses (Notes 6 and
31)
Management, technical and professional fees (Note 23)
Business meetings and representation
Taxes and licenses
Depreciation and amortization (Notes 9 and
10)
Cost of inventory sold
Power, light and water
Reversal of prepaid transaction costs
Postage, telephone and supplies
Transportation and travel
Occupancy costs (Note 26)
Advertising
Cost of new market development
Premium on performance bond (Note 30)
Repairs and maintenance
Insurance
Other expenses
171,294,230
170,462,704
131,402,042
110,682,255
109,826,798
75,173,746
39,969,853
33,053,221
26,928,190
26,051,134
22,451,751
19,700,378
7,717,258
6,568,035
3,234,791
3,058,258
19,825,544
84,761,395
138,963,351
165,609,806
130,263,755
180,191,425
44,244,890
62,163,824
–
21,162,957
37,740,881
33,486,080
17,139,772
1,964,988
5,568,562
67,107,236
5,071,693
30,376,018
Interest income consists of:
Interest income on:
Cash and cash equivalents and short-term cash investments
AFS financial assets
Amortization of discount on receivable from
BWC
Others
Interest expense consists of:
Interest expense on:
Amortization of service concession obligations and deposits
Long-term debt:
Coupon interest
Amortization of debt discount, issuance costs and premium (Note 16)
Pension liabilities
Other operating income includes the following:
Connection fees
Realized income from liquidation of service connection costs (Note 18)
Water and service connections
Sale of inventories
Reopening fee
Septic sludge disposal and bacteriological water analysis
Sale of scrap materials
Miscellaneous
2013
28,177,467
44,629,842
385,871
2013
967,841,819
134,167,263
18,249,100
2013
274,736,513
82,666,483
66,607,107
13,235,506
4,076,150
57,244,083
2012
29,012,161
43,044,776
769,577
2012
998,078,492
122,545,450
24,971,900
2012
35,233,082
47,557,101
35,378,502
12,053,006
3,205,945
28,614,593
2011
90,807,943
90,811,865
118,483,156
80,192,971
89,236,996
31,693,954
20,262,760
–
22,230,052
30,225,552
31,741,284
25,493,985
–
7,862,954
30,002,684
1,696,764
3,396,138
2011
105,186,751
–
614,772
563,588,437
2011
1,157,054,270
125,725,783
23,794,120
2011
–
38,127,509
33,722,406
11,359,461
15,900,122
35,075,920
120
MANILA WATER ANNUAL REPORT 2013

19.
Operating Expenses, Interest Income, Interest Expense and Other Operating Income
Operating expenses consist of:
2013 2012
Salaries, wages and employee benefits
(Notes 17, 21 and 23)
Provision for probable losses (Notes 6 and
31)
Management, technical and professional fees (Note 23)
Business meetings and representation
Taxes and licenses
Depreciation and amortization (Notes 9 and
10)
Cost of inventory sold
Power, light and water
Reversal of prepaid transaction costs
Postage, telephone and supplies
Transportation and travel
Occupancy costs (Note 26)
Advertising
Cost of new market development
Premium on performance bond (Note 30)
Repairs and maintenance
Insurance
Other expenses
171,294,230
170,462,704
131,402,042
110,682,255
109,826,798
75,173,746
39,969,853
33,053,221
26,928,190
26,051,134
22,451,751
19,700,378
7,717,258
6,568,035
3,234,791
3,058,258
19,825,544
84,761,395
138,963,351
165,609,806
130,263,755
180,191,425
44,244,890
62,163,824
–
21,162,957
37,740,881
33,486,080
17,139,772
1,964,988
5,568,562
67,107,236
5,071,693
30,376,018
Interest income consists of:
Interest income on:
Cash and cash equivalents and short-term cash investments
AFS financial assets
Amortization of discount on receivable from
BWC
Others
Interest expense consists of:
Interest expense on:
Amortization of service concession obligations and deposits
Long-term debt:
Coupon interest
Amortization of debt discount, issuance costs and premium (Note 16)
Pension liabilities
Other operating income includes the following:
Connection fees
Realized income from liquidation of service connection costs (Note 18)
Water and service connections
Sale of inventories
Reopening fee
Septic sludge disposal and bacteriological water analysis
Sale of scrap materials
Miscellaneous
2013
28,177,467
44,629,842
385,871
2013
967,841,819
134,167,263
18,249,100
2013
274,736,513
82,666,483
66,607,107
13,235,506
4,076,150
57,244,083
2012
29,012,161
43,044,776
769,577
2012
998,078,492
122,545,450
24,971,900
2012
35,233,082
47,557,101
35,378,502
12,053,006
3,205,945
28,614,593
2011
90,807,943
90,811,865
118,483,156
80,192,971
89,236,996
31,693,954
20,262,760
–
22,230,052
30,225,552
31,741,284
25,493,985
–
7,862,954
30,002,684
1,696,764
3,396,138
2011
105,186,751
–
614,772
563,588,437
2011
1,157,054,270
125,725,783
23,794,120
2011
–
38,127,509
33,722,406
11,359,461
15,900,122
35,075,920
Miscellaneous income includes income from rental of equipment, consultancy services, sale of signages and liquidated damages.
20.
Income Tax
Provision for income tax consists of:
Current
Deferred
2013
8,764,498
2012
(70,010,659)
2011
(348,417,130)
The reconciliation of the statutory income tax rate to the effective income tax rate follows:
Statutory income tax rate
Tax effects of:
Interest income subjected to final tax
Nondeductible expense
Income exempt from tax
Excess of 40% OSD against allowable deductions
Change in unrecognized deferred tax
Others - net
Effective income tax rate
2013
30.00%
(0.44)
0.63
0.10
(10.71)
5.76
(1.48)
23.86%
2012
30.00%
(0.96)
0.61
(1.42)
(5.87)
(0.64)
0.75
22.47%
The deferred tax assets of the Group pertain to the deferred income tax effects of the following:
2013 2012
Service concession obligations - net
Allowance for doubtful accounts (Note 6) 6,230,883
820,499,623
14,747,613
829,074,899
Pension liabilities (Note 17)
Profit and loss
Other comprehensive income
492,192
748,530
631,664
456,537
2011
8,577,190
759,348,754
402,308
358,407
2011
30.00%
(3.24)
0.39
(0.52)
(5.17)
(3.31)
0.13
18.28%
The components of the deferred tax liabilities of the Group represent the deferred income tax effects of the following:
2012 2011
Rent expense differential
Accrued pension liability
Amortization expense differential
431,247
(1,245,266)
318,330
(1,151,191)
Parent Company
RR No. 16-2008 provided the implementing guidelines for Section 34 of RA No. 9504 on the use of the Optional
Standard Deduction (OSD) for corporations. The OSD allowed shall be an amount not exceeding 40% of the gross income. Gross income earned refers to gross sales or gross revenue derived from any business activity, net of returns and allowances, less cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses. This was applied by the Parent Company and for the years ended December 31,
2013, 2012 and 2011.
The Parent Company secured income tax holiday (ITH) benefit for the Antipolo Water Supply Project in 2011 and
East La Mesa Water Treatment Plant Project in 2012. These projects have been registered with the Board of
Investments (BOI).
The tax rate of 18% for the years in which OSD is projected to be utilized was used in computing the deferred income taxes on the net service concession obligation starting 2009.
The availment of OSD affected the recognition of several deferred tax assets and liabilities, in which the related income and expenses are not considered in determining gross income for income tax purposes. The Parent
Company forecasts that it will continue to avail of the OSD, such that the manner by which it will recover or settle the underlying assets and liabilities, for which the deferred tax assets and liabilities were initially recognized, would not result in any future tax consequence under OSD.
121

Details of the accounts for which no deferred taxes were recognized as of December 31, 2013 and 2012 follow:
2013
Allowance for doubtful accounts (Note 6)
Pension liabilities (Note 17)
Unamortized discount on receivable from BWC
Unamortized debt discounts and issuance costs of long-term debt
(Note 16)
361,047,300
202,306,668
(411,160,016)
2012
234,379,954
192,091,325
(511,259,710)
The net reduction in deferred tax assets from applying the 18% tax rate to the recognized deferred taxes on net service obligation, and the derecognition of the deferred taxes relating to the accounts with temporary differences which are not considered in determining gross income for income tax purposes, by the Parent Company amounted to
In addition to the deferred tax assets and liabilities that have not been recognized as a consequence of the OSD income, for which no deferred tax assets have been recognized. As of December 31, 2013 and 2012, the
CWC
CWC as a duly registered CFZ enterprise under RA No. 9400, An Act Amending RA No. 7227 otherwise known as the Bases Conversion and Development Act of 1992 , is entitled to all the rights, privileges and benefits established there under including tax and duty-free importation of capital equipment and special income tax rate of 5% of gross income earned from sources within the CFZ.
BIWC
On January 25, 2011, BIWC filed an application for registration with the BOI under Executive Order (EO) No. 226, as amended, as a new operator of water supply and distribution for the Boracay Island on a non-pioneer status. The application was ratified on February 9, 2011.
On June 17, 2011, BIWC’s application was registered with the BOI under Book 1 of EO 226. The ITH is for four (4) years from June 2011 or actual start of commercial operations, whichever is earlier but in no case earlier than the date of registration. The ITH entitlement shall be limited to the water sales schedule reflected in specific terms and condition of the registration. Further, the ITH entitlement for the wastewater or sewerage services shall be limited only to 10% of the total revenue derived from its water supply.
LAWC
LAWC is registered with the BOI under the Omnibus Investment Code of 1987. The registration entitles the Company to an ITH for four years until 2010. In 2011, LAWC applied for a one year extension of the ITH incentive which was approved by BOI on January 19, 2012.
In 2013, LAWC availed of the OSD and the tax rate of 18% for the years in which OSD is projected to be utilized was used in computing the deferred income taxes of LAWC.
Other subsidiaries
All other domestic subsidiaries are subject to Regular Corporate Income Tax of 30% while foreign subsidiaries are subject to tax rates applicable in their respective countries.
NOLCO
The movements of the Group’s NOLCO as of December 31, 2013, which are available for offset against future taxable income for the three succeeding years and for which no deferred tax asset have been recognized follow:
Year Incurred
2010
2011
2012
2013
Amount
4,181,647
11,564,673
35,982
Used/Expired
–
–
–
Balance
4,181,647
11,564,673
35,982
Expiry Year
2013
2014
2015
2016
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MANILA WATER ANNUAL REPORT 2013

Details of the accounts for which no deferred taxes were recognized as of December 31, 2013 and 2012 follow:
2013
Allowance for doubtful accounts (Note 6)
Pension liabilities (Note 17)
Unamortized discount on receivable from BWC
Unamortized debt discounts and issuance costs of long-term debt
(Note 16)
361,047,300
202,306,668
(411,160,016)
2012
234,379,954
192,091,325
(511,259,710)
The net reduction in deferred tax assets from applying the 18% tax rate to the recognized deferred taxes on net service obligation, and the derecognition of the deferred taxes relating to the accounts with temporary differences which are not considered in determining gross income for income tax purposes, by the Parent Company amounted to
In addition to the deferred tax assets and liabilities that have not been recognized as a consequence of the OSD income, for which no deferred tax assets have been recognized. As of December 31, 2013 and 2012, the
CWC
CWC as a duly registered CFZ enterprise under RA No. 9400, An Act Amending RA No. 7227 otherwise known as the Bases Conversion and Development Act of 1992 , is entitled to all the rights, privileges and benefits established there under including tax and duty-free importation of capital equipment and special income tax rate of 5% of gross income earned from sources within the CFZ.
BIWC
On January 25, 2011, BIWC filed an application for registration with the BOI under Executive Order (EO) No. 226, as amended, as a new operator of water supply and distribution for the Boracay Island on a non-pioneer status. The application was ratified on February 9, 2011.
On June 17, 2011, BIWC’s application was registered with the BOI under Book 1 of EO 226. The ITH is for four (4) years from June 2011 or actual start of commercial operations, whichever is earlier but in no case earlier than the date of registration. The ITH entitlement shall be limited to the water sales schedule reflected in specific terms and condition of the registration. Further, the ITH entitlement for the wastewater or sewerage services shall be limited only to 10% of the total revenue derived from its water supply.
LAWC
LAWC is registered with the BOI under the Omnibus Investment Code of 1987. The registration entitles the Company to an ITH for four years until 2010. In 2011, LAWC applied for a one year extension of the ITH incentive which was approved by BOI on January 19, 2012.
In 2013, LAWC availed of the OSD and the tax rate of 18% for the years in which OSD is projected to be utilized was used in computing the deferred income taxes of LAWC.
Other subsidiaries
All other domestic subsidiaries are subject to Regular Corporate Income Tax of 30% while foreign subsidiaries are subject to tax rates applicable in their respective countries.
NOLCO
The movements of the Group’s NOLCO as of December 31, 2013, which are available for offset against future taxable income for the three succeeding years and for which no deferred tax asset have been recognized follow:
Year Incurred
2010
2011
2012
2013
Amount
4,181,647
11,564,673
35,982
Used/Expired
–
–
–
Balance
4,181,647
11,564,673
35,982
Expiry Year
2013
2014
2015
2016
21.
Equity
The Parent Company’s capital stock consists of:
Shares
2013
Amount Shares
2012
Amount
Authorized
Issued and subscribed
Outstanding
3,100,000,000
2,047,270,452
2,015,301,474
P 3,100,000,000 =3,100,000,000
2,047,270,452 2,041,453,232 2,041,453,232
2,015,301,474 2,005,443,965 2,005,443,965 cumulative, voting, participating, nonredeemable and nonconvertible
Authorized, issued and outstanding -
4,000,000,000 shares 4,000,000,000 400,000,000 4,000,000,000 400,000,000
On March 18, 2005, the Parent Company launched its Initial Public Offering where a total of 745.33 million common certificated shareholders as of December 31, 2013 and 2012, respectively. The Scripless shareholders are counted under PCD Nominee Corporation (Filipino) and PCD Nominee Corporation (Non-Filipino).
The Concession Agreement, as discussed in Note 1, provides that unless waived in writing by the MWSS-RO, United
Utilities PLC (the International Water Operator) and AC (the Sponsor) shall each own (directly or through a subsidiary which is at least 51% owned and controlled by United Utilities PLC or AC) at least 20% of the outstanding capital stock of the Parent Company until December 31, 2002 and at least 10% after the first Rate Rebasing (January 1,
2003) and throughout the concession period. On July 26, 2012, MWSS-RO waived the requirement for United
Utilities to own at least 10% of the outstanding capital stock of the Parent Company.
Preferred shares the Parent Company’s BOD, based on retained earnings availability.
On April 16, 2012, during the Parent Company’s Annual Stockholders’ Meeting, the shareholders approved the
Dividends
The following table shows the cash dividends declared by the Parent Company’s BOD on the outstanding capital stock for each of the three years ended December 31, 2013:
Declaration Date
April 11, 2011
September 20, 2011
November 24, 2011
April 16, 2012
September 25, 2012
November 29, 2012
April 15, 2013
September 26, 2013
November 28, 2013
Record Date
April 27, 2011
October 4, 2011
December 1, 2011
April 30, 2012
October 9, 2012
December 1, 2012
April 29, 2013
October 10, 2013
December 1, 2013
Common
Shares
0.280
–
0.298
0.298
–
0.382
0.382
–
Amount Per Share
Participating
Preferred Shares
0.0280
0.0280
0.0100
0.0298
0.0298
0.0100
0.0382
0.0382
0.0100
Redeemable
Preferred Shares
–
–
–
–
–
–
–
–
Payment Date
May 19, 2011
October 27, 2011
December 28, 2011
May 24, 2012
November 6, 2012
December 28, 2012
April 29, 2013
October 5, 2013
December 27, 2013
There are no dividends in arrears for the Parent Company’s participating preferred shares as of December 31, 2013 and 2012.
Retained earnings include the accumulated equity in undistributed net earnings of consolidated subsidiaries, the Company until these are declared by the investee companies.
In accordance with SRC Rule 68, as Amended (2011), Annex 68-C, the Parent Company’s retained earnings respectively.
Appropriation for capital expenditures under the Concession Agreement. A Business Plan was submitted to the MWSS on March 30, 2012 for Rate
Rebasing charging year 2013, which included planned capital expenditures on (1) service continuity, (2) service accessibility, (3) water security and (4) environmental sustainability. Planned investments amount to an estimated
123

which were approved by the BOD on April 15, 2013 and was part of the submitted Business Plan to the MWSS:
 Service continuity projects are endeavored to maintain the level of service provided to its customers even in times of calamity;
 Service accessibility projects would enable the Parent Company to expand its service coverage, particularly to the Municipalities of Rizal;
 Water security projects include two components: (1) new water source development and, (2) existing water source rehabilitation and improvement. New water source development projects include the Rizal Province
Water Supply Improvement Project, as well as the Sumag, Tayabasan and Kaliwa River development projects.
Other components include major improvement works for key raw water structures such as Angat Dam and Ipo
Dam, transmission aqueducts extending from Bulacan to La Mesa Dam managed under the Common Purpose
Facilities framework, and transmission aqueducts extending from La Mesa Dam to the Balara Treatment Plant; and
 Projects under the Environmental Sustainability Investment category are comprised of wastewater projects endeavored to achieve Manila Water’s wastewater coverage targets.
Executive Stock Option Plan (Executive SOP), Expanded Executive SOP and ESOWN
On February 26, 2004, the Parent Company’s BOD authorized the allocation of up to 20.00 million of the treasury shares for distribution from time to time as may be authorized by the Chairman of the Board (Chairman) as incentive and reward to deserving officers of the Parent Company with rank of Manager 2 and above, including senior officers seconded from any parent company, under the Executive SOP.
On October 28, 2004, the Parent Company’s BOD approved the allocation of an additional 3.60 million shares for the
Executive SOP, which will come from the Company’s unissued shares or common shares held in treasury.
Accordingly, total allocation for the Executive SOP increased to 23.60 million shares.
On the same date, the Parent Company’s BOD approved the allocation of 136.40 million common shares for the
Expanded Executive SOP covering 96.40 million common shares and the ESOWN covering 40.00 million common shares. The common shares for the ESOWN and the Expanded Executive SOP will come from the Parent
Company’s unissued common shares or common shares held in treasury. The common shares under the Expanded
Executive SOP and ESOWN will be distributed from time to time as an incentive and reward to deserving Parent
Company’s executives (Expanded Executive SOP) and employees (ESOWN) of the Parent Company as may be authorized by the Chairman.
In March 2005, the Parent Company granted 23.6 million options under the Executive SOP with an exercise price of the time the options vest. The vesting schedule of the options is as follows:
Year
2006
2007
2008
Vesting Percentage
40%
30%
30%
On November 15, 2005, the Parent Company’s BOD approved the allocation of 25.00 million common shares, consisting of unissued shares and/or undisposed treasury shares, for distribution from time to time as may be authorized by the Chairman, as an incentive and reward to deserving executives of the Parent Company with rank of
Manager 1 and above, under the ESOWN.
On February 2, 2006, the Parent Company’s BOD authorized the migration of the Executive SOP covering
23.60 million common shares to ESOWN by giving Executive SOP grantees a one-time opportunity to convert their
The ESOWN terms are described in the succeeding paragraphs.
The migration resulted in the recognition of the additional fair value of the replacement options amounting to the discounted strike price.
The subscribed shares are effectively treated as options exercisable within a given period which is the same time as the grantee’s payment schedule. The fair values of these options are estimated on the date of grant using the
Binomial Tree Model. In computing for the stock option value for 2013 grant, the Parent Company assumed 24.90%,
3.47% and 2.99% as the volatility, dividend yield and risk-free interest rate, respectively.
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MANILA WATER ANNUAL REPORT 2013

which were approved by the BOD on April 15, 2013 and was part of the submitted Business Plan to the MWSS:
 Service continuity projects are endeavored to maintain the level of service provided to its customers even in times of calamity;
 Service accessibility projects would enable the Parent Company to expand its service coverage, particularly to the Municipalities of Rizal;
 Water security projects include two components: (1) new water source development and, (2) existing water source rehabilitation and improvement. New water source development projects include the Rizal Province
Water Supply Improvement Project, as well as the Sumag, Tayabasan and Kaliwa River development projects.
Other components include major improvement works for key raw water structures such as Angat Dam and Ipo
Dam, transmission aqueducts extending from Bulacan to La Mesa Dam managed under the Common Purpose
Facilities framework, and transmission aqueducts extending from La Mesa Dam to the Balara Treatment Plant; and
 Projects under the Environmental Sustainability Investment category are comprised of wastewater projects endeavored to achieve Manila Water’s wastewater coverage targets.
Executive Stock Option Plan (Executive SOP), Expanded Executive SOP and ESOWN
On February 26, 2004, the Parent Company’s BOD authorized the allocation of up to 20.00 million of the treasury shares for distribution from time to time as may be authorized by the Chairman of the Board (Chairman) as incentive and reward to deserving officers of the Parent Company with rank of Manager 2 and above, including senior officers seconded from any parent company, under the Executive SOP.
On October 28, 2004, the Parent Company’s BOD approved the allocation of an additional 3.60 million shares for the
Executive SOP, which will come from the Company’s unissued shares or common shares held in treasury.
Accordingly, total allocation for the Executive SOP increased to 23.60 million shares.
On the same date, the Parent Company’s BOD approved the allocation of 136.40 million common shares for the
Expanded Executive SOP covering 96.40 million common shares and the ESOWN covering 40.00 million common shares. The common shares for the ESOWN and the Expanded Executive SOP will come from the Parent
Company’s unissued common shares or common shares held in treasury. The common shares under the Expanded
Executive SOP and ESOWN will be distributed from time to time as an incentive and reward to deserving Parent
Company’s executives (Expanded Executive SOP) and employees (ESOWN) of the Parent Company as may be authorized by the Chairman.
In March 2005, the Parent Company granted 23.6 million options under the Executive SOP with an exercise price of the time the options vest. The vesting schedule of the options is as follows:
Year
2006
2007
2008
Vesting Percentage
40%
30%
30%
On November 15, 2005, the Parent Company’s BOD approved the allocation of 25.00 million common shares, consisting of unissued shares and/or undisposed treasury shares, for distribution from time to time as may be authorized by the Chairman, as an incentive and reward to deserving executives of the Parent Company with rank of
Manager 1 and above, under the ESOWN.
On February 2, 2006, the Parent Company’s BOD authorized the migration of the Executive SOP covering
23.60 million common shares to ESOWN by giving Executive SOP grantees a one-time opportunity to convert their
The ESOWN terms are described in the succeeding paragraphs.
The migration resulted in the recognition of the additional fair value of the replacement options amounting to the discounted strike price.
The subscribed shares are effectively treated as options exercisable within a given period which is the same time as the grantee’s payment schedule. The fair values of these options are estimated on the date of grant using the
Binomial Tree Model. In computing for the stock option value for 2013 grant, the Parent Company assumed 24.90%,
3.47% and 2.99% as the volatility, dividend yield and risk-free interest rate, respectively.
For the unsubscribed shares, the employee still has the option to subscribe within seven (7) years.
The fair values of stock options granted are estimated on the date of grant using the Binomial Tree Model and Black-
Scholes Merton Formula, taking into account the terms and conditions upon which the options were granted. The expected volatility was determined based on an independent valuation.
The fair value of stock options granted under ESOWN at grant date and the assumptions used to determine the fair value of the stock options follow:
Number of shares granted
Number of unsubscribed
Shares
Fair value of each option
Weighted average share price
Exercise price
Expected volatility
Dividend yield
Risk-free interest rate
Expected life of option
November 19,
2013
6,627,100
351,689
24.90%
3.47%
2.99%
4 years
October 5,
2012
4,772,414
460,000
Grant Dates
September 19,
2011 April 30, 2009 June 15, 2008 May 21, 2007 May 2, 2006
4,617,000 9,241,025 7,798,483 2,130,000 13,625,000
54,000 1,442,000 1,580,000 520,000 2,265,000
30.66%
2.56%
4.57%
4 years
33.68%
2.68%
4.76%
4 years
44.66%
2.92%
8.53%
4 years
25.64%
1.96%
6.93%
4 years
27.29%
2.58%
10.55%
7 years
24.65%
3.40%
11.30%
7 years
To enjoy the rights provided for in the ESOWN, the grantee should be with the Parent Company at the time the holding period expires. The Holding Period of the ESOWN shares follows:
Year
After one year from subscription date
After two years from subscription date
After three years from subscription date
Holding Period
40%
30%
30%
The ESOWN grantees are allowed to subscribe fully or partially to whatever allocation may have been granted to them. In case of partial subscriptions, the employees are still allowed to subscribe to the remaining unsubscribed shares granted to them provided that this would be made at the start of Year 5 from grant date up to the end of
Year 6. Any additional subscription made by the employee (after the initial subscription) will be subjected to another
3-year holding period.
Movements in the number of stock options outstanding under ESOWN are as follows:
At January 1
Granted
Exercised
At December 31
2013
5,936,000
6,627,100
(5,817,220)
Weighted average exercise price
22.92
22.92
6,745,880
2012
5,476,000
4,772,414
(4,312,414)
Weighted average exercise price
24.07
24.07
5,936,000
The expected life of the options is based on management’s estimate and is not necessarily indicative of exercise patterns that may occur. The expected volatility used for the 2007 and 2006 grants was based on the average historical price volatility of several water utility companies within the Asian region. For the grants beginning 2008, the
Parent Company’s volatility was used as input in the valuation. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily reflect the actual outcome.
No other features of the options granted were incorporated into the measurement of fair value.
Other equity reserve
This account pertains to gain on sale of the Parent Company’s investment in MW Consortium to Vicsal Development
125

22.
Earnings Per Share
Earnings per share amounts attributable to equity holders of the Parent Company for the years ended December 31,
2013, 2012 and 2011 were computed as follows:
2013
2012
(As restated
Notes 2 and 17)
2011
(As restated
Notes 2 and 17)
Net income attributable to equity holders of the
Parent Company
Less dividends on preferred shares*
Net income attributable to common shareholders for basic and diluted earnings per share
Weighted average number of shares for basic earnings per share
Dilutive shares arising from stock options
Adjusted weighted average number of common stock for diluted earnings per share
Basic earnings per share
P
975,524,597
4,776,837,349
P
=2,042,422,769 P
2,763,058
2,045,185,827
Diluted earnings per share
*Including participating preferred shares’ participation in earnings.
934,135,212
4,556,307,452
2,038,218,922
2,322,628
2,040,541,550
=
782,407,882
3,487,797,596
2,034,112,151
2,770,140
2,036,882,291
The assumed conversion of the Group’s preferred shares has no dilutive effect. Accordingly, basic earnings per share is equal to the dilutive earnings per share.
23.
Related Party Transactions
Parties are considered to be related to the Group if it has the ability, directly or indirectly, to control the Group or exercise significant influence over the Group in making financial and operating decisions, or vice versa, or where the
Group and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.
In the normal course of business, the Group has transactions with related parties. The sales and investments made to related parties are made at normal market prices. Service agreements are based on rates agreed upon by the parties. Outstanding balances at year-end are unsecured and interest-free. There have been no guarantees provided or received for any related party receivables or payables. As of December 31, 2013 and 2012, the Group has not made any provision for probable losses relating to amounts owed by related parties. This assessment is undertaken each financial year by examining the financial position of the related party and the market in which the related party operates.
Significant transactions with related parties follow: a.
The Parent Company entered into management agreements with United Utilities B.V., an affiliate of United
Utilities, a stockholder of Philwater, AC, a principal stockholder, and Water Capital Works, Inc. (WCWI), a joint venture Group formed by AC, United Utilities and BPI Capital. Under the agreements, AC, United Utilities and
WCWI will provide technical and other knowledge, experience and skills as reasonably necessary for the development, administration and operation of the concession, for which the Parent Company shall pay to each one of them an annual base fee of US$1.00 million and adjusted for the effect of CPI, except for WCWI which has a base fee of 1% of the earned values of the project being supervised. As a result, certain key management positions are occupied by employees of these related parties. The agreements are for a period of 10 years until
2007 and are renewable for successive periods of 5 years.
The BOD, in its meeting on August 16, 2007, approved the renewal of the Technical Services Agreement (TSA) with United Utilities, Administrative and Support Services Agreement (ASSA) with AC and Capital Works
Agreement (CWA) with WCWI for another five years up to 2012. On July 31, 2012, the TSA with United Utilities was terminated. The CWA with WCWI was also terminated on January 1, 2011. The ASSA, on the other hand, was renewed for another five years up to 2017. Total management and professional fees charged to operations
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MANILA WATER ANNUAL REPORT 2013

22.
Earnings Per Share
Earnings per share amounts attributable to equity holders of the Parent Company for the years ended December 31,
2013, 2012 and 2011 were computed as follows:
2013
2012
(As restated
Notes 2 and 17)
2011
(As restated
Notes 2 and 17)
Net income attributable to equity holders of the
Parent Company
Less dividends on preferred shares*
Net income attributable to common shareholders for basic and diluted earnings per share
Weighted average number of shares for basic earnings per share
Dilutive shares arising from stock options
Adjusted weighted average number of common stock for diluted earnings per share
Basic earnings per share
P
975,524,597
4,776,837,349
P
=2,042,422,769 P
2,763,058
2,045,185,827
Diluted earnings per share
*Including participating preferred shares’ participation in earnings.
934,135,212
4,556,307,452
2,038,218,922
2,322,628
2,040,541,550
=
782,407,882
3,487,797,596
2,034,112,151
2,770,140
2,036,882,291
The assumed conversion of the Group’s preferred shares has no dilutive effect. Accordingly, basic earnings per share is equal to the dilutive earnings per share.
23.
Related Party Transactions
Parties are considered to be related to the Group if it has the ability, directly or indirectly, to control the Group or exercise significant influence over the Group in making financial and operating decisions, or vice versa, or where the
Group and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.
In the normal course of business, the Group has transactions with related parties. The sales and investments made to related parties are made at normal market prices. Service agreements are based on rates agreed upon by the parties. Outstanding balances at year-end are unsecured and interest-free. There have been no guarantees provided or received for any related party receivables or payables. As of December 31, 2013 and 2012, the Group has not made any provision for probable losses relating to amounts owed by related parties. This assessment is undertaken each financial year by examining the financial position of the related party and the market in which the related party operates.
Significant transactions with related parties follow: a.
The Parent Company entered into management agreements with United Utilities B.V., an affiliate of United
Utilities, a stockholder of Philwater, AC, a principal stockholder, and Water Capital Works, Inc. (WCWI), a joint venture Group formed by AC, United Utilities and BPI Capital. Under the agreements, AC, United Utilities and
WCWI will provide technical and other knowledge, experience and skills as reasonably necessary for the development, administration and operation of the concession, for which the Parent Company shall pay to each one of them an annual base fee of US$1.00 million and adjusted for the effect of CPI, except for WCWI which has a base fee of 1% of the earned values of the project being supervised. As a result, certain key management positions are occupied by employees of these related parties. The agreements are for a period of 10 years until
2007 and are renewable for successive periods of 5 years.
The BOD, in its meeting on August 16, 2007, approved the renewal of the Technical Services Agreement (TSA) with United Utilities, Administrative and Support Services Agreement (ASSA) with AC and Capital Works
Agreement (CWA) with WCWI for another five years up to 2012. On July 31, 2012, the TSA with United Utilities was terminated. The CWA with WCWI was also terminated on January 1, 2011. The ASSA, on the other hand, was renewed for another five years up to 2017. Total management and professional fees charged to operations respectively.
b.
On March 11, 2013, the shareholders of MW Consortium, the Parent Company, Metropac Water Investment
Corporation (“Metropac”) and Vicsal Development Corporation (Vicsal), agreed to extend a loan amounting to has a fixed interest rate and applicable taxes were shouldered by CMWD.
The breakdown of the loan is as follows:
MWCI
Metropac
Vicsal
Total
Equity in Company
51%
39
10
100%
Contributed
Amounts
(in millions)
101.40
26.00
As of December 31, 2013, MW Consortium’s advances from the Parent Company were fully paid.
c.
In 2013, the Group disposed its investments in debt and equity securities of AC, and its subsidiaries and jointly controlled entities, which were previously included in the “AFS financial assets” section of the consolidated statements of financial position. The fair values of these investments in 2012 follow:
Debt Securities Equity Securities
Shareholder:
AC
Affiliates:
Ayala Land, Inc. (ALI)
Bank of the Philippine Islands (BPI)
92,799,000
36,597,104
129,396,104
–
–
–
In addition, the Parent Company holds 0.39 million units of Unit Investment Trust Fund (UITF) of BPI. As of
Company disposed all of its UITF.
d.
The following tables provide the total amount of all other transactions that have been entered into with the Parent
Company’s shareholders and affiliates for the relevant financial year:
Cash in banks and cash equivalents
2013 2012
Receivables
2013 2012
Advances to Contractors
2013 2012
Trade Payables
2013 2012
Shareholder:
AC
Affiliates:
ALI and Subsidiaries
BPI and Subsidiaries
Ayala Automotive
Holdings, Corp.
(AAHC)
Globe and
Subsidiaries
Azalea Technology
LLC
–
2,185,316,625
–
–
–
2,185,316,625
–
2,652,597,499
–
–
–
228,474
–
–
– 6,000
2,652,597,499 234,474
P =234,474
1,434,447
90,053
4,751
–
–
1,529,251
–
–
–
–
–
–
P –
22,565,765
–
–
–
–
22,565,765
242,698,974
–
–
40,094
–
242,739,068
267,015,505
–
–
–
–
267,015,505
Receivables are primarily composed of trade receivables for water and sewerage services rendered by the
Group. These are non-interest bearing and are collectible within 30 days from bill generation. No allowance for doubtful accounts was provided for receivables from related parties as of December 31, 2013 and 2012.
Advances to contractors included as part of “Other current assets” pertains to down payments related to construction of fixed assets. These are normally applied within a year against progress billings.
127

Trade payables pertain to retentions deducted from contractors’ billings and are normally paid within a year after project acceptance.
2013
Revenue
2012 2013
Purchases
2012
Shareholder:
AC
Affiliates:
ALI and Subsidiaries
BPI and Subsidiaries
Globe and Subsidiaries
AAHC
Azalea Technology, LLC
Honda Cars Makati, Inc.
131,663,685
9,794,019
3,616,822
420,950
262,349
–
145,757,825
140,787,454
9,053,010
3,171,871
468,643
173,326
–
153,654,304
626,910,828
–
9,328,915
–
–
53,954
636,293,697
375,161,424
–
9,748,489
–
–
2,551,337
387,461,250
Revenue is mainly attributable to water and sewerage services rendered by the Group to its shareholder and affiliates. Purchases from ALI and subsidiaries mainly pertain to construction of fixed assets while purchases from HCMI relates to acquisition and repairs of transportation equipment. Purchases from Globe pertain to telecommunication services and purchases from BPI relate to banking transactions and financial services to the
Group.
e.
In November 2008, the Parent Company entered into a term loan and credit line facility agreement with AMPC.
Under the credit line facility agreement, the Parent Company will establish a car/multi-purpose loan fund in the drawdown has been substantially disbursed (85%) to Parent Company employees, AMPC may request for no interest.
As of December 31, 2013 and 2012, total loans drawn from Parent Company amounted to f.
On June 1, 2010, MWAP and Speedy-Tech Electronics Ltd. (STEL), a subsidiary of Integrated Microelectronics,
Inc., entered into a Tenancy Agreement wherein (STEL) will lease office space to MWAP. Total rent expense g.
On April 9, 2002, LAWC entered into a concession agreement (as amended on March 31, 2004) with POL, one of
Notes 1 and 30).
h.
On December 17, 2009, BIWC entered into a concession agreement with TIEZA, one of its shareholders, for a period of 25 years, with commencement date on January 1, 2010 and renewable at any time prior to expiration for another 25 years, without necessity of bidding.
advance payment which was considered part of concession assets in 2010.
As of December 31, 2012, these advances were fully offset against the annual concession fee payments (see
Notes 14 and 30).
i.
One of the trustee banks who manages the Group’s retirement fund is BPI, an affiliate. The Group’s plan assets j.
Compensation of key management personnel of the Group by benefit type follows:
2013
Short-term employee benefits
Post-employment benefits
Share-based payment
15,640,000
50,833,629
2012
22,916,316
25,506,509
On November 22, 2012, the Parent Company signed as a guarantor of a credit facility entered into by MWSAH.
On August 12, 2013, the credit facility was cancelled.
128
MANILA WATER ANNUAL REPORT 2013

k.
On December 23, 2013 LAWC, signed an Asset Purchase Agreement with LTI with a purchase price of
24.
Management Contracts
Vietnam project
On July 22, 2008, the Parent Company entered into a Performance-Based Leakage Reduction and Management
Services Contract with SAWACO. The contract involves the following components: a.
General requirements; b.
District Metering Area establishment; c.
Leakage reduction and management services; d.
System expansion work; e.
Emergency and unforseen works; and f.
Daywork schedule
2012, respectively.
25.
Significant Contracts with the West Zone Concessionaire
In relation to the Agreement, the Parent Company entered into the following contracts with Maynilad: a.
Interconnection Agreement wherein the two Concessionaires shall form an unincorporated joint venture that will manage, operate, and maintain interconnection facilities. The terms of the agreement provide, among others, the cost and the volume of water to be transferred between zones.
b.
Joint Venture Arrangement that will operate, maintain, renew, and as appropriate, decommission common purpose facilities, and perform other functions pursuant to and in accordance with the provisions of the
Agreement and perform such other functions relating to the concession (and the concession of the West Zone
Concessionaire) as the Concessionaires may choose to delegate to the joint venture, subject to the approval of
MWSS.
c.
In March 2010, MWSS entered into a loan agreement with The Export-Import Bank of China to finance the Angat
Water Utilization and Aqueduct Improvement Project Phase II (the Project). Total loan facility is
US$116.60 million with maturity of 20 years including 5 years grace period. Interest rate is 3% per annum.
MWSS then entered into a Memorandum of Agreement with the Parent Company and Maynilad for Parent
Company and MWSI to shoulder equally the repayment of the loan, with such repayment to be part of the concession fees (see Notes 1 and 10).
26.
Assets Held in Trust
MWSS
The Parent Company is granted the right to operate, maintain in good working order, repair, decommission and refurbish the movable property required to provide the water and sewerage services under the Agreement. The legal title to all movable property in existence at the Commencement Date, however, shall be retained by MWSS and upon expiration of the useful life of any such movable property as may be determined by the Parent Company, such movable property shall be returned to MWSS in its then-current condition at no charge to MWSS or the Parent
Company.
The Agreement also provides for the Concessionaires to have equal access to MWSS facilities involved in the provision of water supply and sewerage services in both East and West Zones including, but not limited to, the MWSS management information system, billing system, telemetry system, central control room and central records.
The net book value of the facilities transferred to the Parent Company on Commencement Date based on MWSS’
A re-appraisal of the MWSS facilities mentioned above as of December 31, 2004 was conducted by Cuervo
Appraisers. The final appraisal report was submitted on November 2006 showing a total reproduction cost of
129

In 2009, the Parent Company engaged the services of Cuervo Appraisers to conduct a re-appraisal of the MWSS assets on record as of December 31, 2008. Total reproduction cost as of December 31, 2008 amounted to
In 2011, the Parent Company engaged the services of Cuervo Appraisers, Inc. to conduct a re-appraisal of the MWSS assets on record as of December 31, 2011. Total reproduction cost as of December 31, 2011 amounted to
MWSS’ corporate headquarters is made available to the Concessionaires starting August 1, 1997, subject to periodic renewal by mutual agreement of the parties. On October 27, 2006, the Parent Company has renewed the lease for
2012, respectively. These are included under “Occupancy costs” in consolidated statement of comprehensive income.
POL
LAWC is granted the right to manage, occupy, operate, repair, maintain, decommission and refurbish the property required to provide water services under its concession agreement with POL. The legal title of all property in existence at the commencement date shall be retained by POL. Upon expiration of the useful life of any such property as may be determined by LAWC, such property shall be returned to POL in its then condition at no charge to
POL or LAWC.
In 2011, LAWC engaged the services of Cuervo Appraisers to conduct a re-appraisal of POL assets on record as of
TIEZA
BIWC is granted the right to operate, maintain in good working order, repair, decommission and refurbish the movable property required to provide the water and sewerage services under its concession agreement with TIEZA. The legal title to all movable property in existence at the commencement date, however, shall be retained by TIEZA and upon expiration of the useful life of any such movable property as may be determined by BIWC, such movable property shall be returned to TIEZA in its then-current condition at no charge to TIEZA or BIWC.
The net book value of the facilities transferred to BIWC on commencement date based on TIEZA’s closing audit
CDC
CWC is granted the right to occupy, operate, repair, maintain, decommission and refurbish all fixed and movable assets specifically listed in the concession agreement with CDC. Any new construction, change, alteration, addition or improvement on the facilities is permitted to the extent allowed under the agreement with CDC or with the prior written consent of CDC. Legal title, free of all liens and encumbrances, to improvements made or introduced by CWC on the facilities as well as title to new facilities procured by CWC in the performance of its obligations under the concession agreement shall automatically pass to CDC on the date when the concession period expires or the date of receipt of a validly served termination notice, in the latter case, subject to payment of the amount due as termination payments as defined in the concession agreement.
The net book value of the facilities transferred to CWC on commencement date based on CDC’s closing audit report
27.
Segment Information
Business segment information is reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources among operating segments. Accordingly, the segment information is reported based on the nature of service the Group is providing and its geographic location.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
The amount of segment assets and liabilities are based on measurement principles that are similar with those used in measuring assets and liabilities in the consolidated statement of financial position which is in accordance with PFRS.
The segments where the Group operates follow:
 East Zone - manage, operate, repair, decommission, and refurbish all fixed and movable assets (except certain retained assets) required to provide water delivery services and sewerage services in the East Zone. Revenue
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MANILA WATER ANNUAL REPORT 2013

from this business segment consists of water, environmental charges, sewer, income from septic sludge disposal and bacteriological water analysis and other miscellaneous income.
 Outside East Zone - manage, operate, repair, decommission, and refurbish all fixed and movable assets (except certain retained assets) required to provide water delivery services and sewerage services outside the East
Zone. Revenue from this segment consists of water and other miscellaneous income.
 Management contracts - agreements related to improvements in the customers’ water systems. Revenue from management contracts comprises the revenue of this business segment.
Details of the Group’s operating segments as of and for the years ended December 31, 2013 and 2012 and
January 1, 2012 are as follows:
2013
East Zone
Outside
East Zone
( In Thousands )
Management
Contracts Consolidated
Revenue
Sales to external customers
Operating expenses
Operating income
Revenue from rehabilitation works
Cost of rehabilitation works
Interest income
Interest expense
Equity share in net income of associates
Other income
Income before income tax
Provision for income tax
Net income
Other comprehensive income
Unrealized gain (loss) on AFS financial assets
Cumulative translation adjustment
Actuarial gain (loss) on pension liabilities - net
Total comprehensive income
Total comprehensive income attributable to:
Equity holders of Manila Water Company, Inc.
Non-controlling interests
6,421,361
8,372,705
4,177,636
(4,177,636)
152,614
(1,671,312)
–
6,039
6,860,046
1,757,536
5,102,510
–
(66,233)
–
630,798
326,014
893,622
(893,622)
20,211
(62,088)
293,975
75,250
653,362
54,037
599,325
127,109
(1,462)
28,102
96,213
78,726
–
–
–
–
–
–
78,726
–
78,726
–
–
–
7,148,372
8,777,445
5,071,258
(5,071,258)
172,825
(1,733,400)
293,975
81,289
7,592,134
1,811,573
5,780,561
127,109
(67,695)
28,102
Other information
Segment assets, exclusive of investment in associates and deferred tax assets
Investment in associates
Deferred tax assets
Segment liabilities, exclusive of deferred tax liabilities
Deferred tax liabilities
Segment additions to property and equipment and
SCA
Depreciation and amortization
Noncash expenses other than depreciation and amortization*
* Pertains to the amount of impairment loss recognized during the year .
–
781,409
–
4,708,207
40,331
–
–
–
–
4,708,207
821,740
–
131

2012
East Zone
Revenue
Sales to external customers
Operating expenses
Operating income
Revenue from rehabilitation works
Cost of rehabilitation works
Interest income
Interest expense
Equity share in net income of associates
Other income (expenses)
Income before income tax
Provision for income tax
Net income
Other comprehensive income
Unrealized gain (loss) on AFS financial assets
Cumulative translation adjustment
Actuarial gain (loss) on pension liabilities - net
Total comprehensive income
Total comprehensive income attributable to:
Equity holders of Manila Water Company, Inc.
Non-controlling interests
5,920,789
7,727,338
5,621,199
(5,621,199)
256,070
(1,521,580)
–
210,284
6,672,112
1,541,557
–
(96,203)
–
Other information
Segment assets, exclusive of investment in associates and deferred tax assets
Investment in associates
Deferred tax assets
Segment liabilities, exclusive of deferred tax liabilities
Deferred tax liabilities
Segment additions to property and equipment and
SCA
Depreciation and amortization
Noncash expenses other than depreciation and amortization*
* Pertains to the amount of impairment loss recognized during the year .
–
762,488
–
2011
East Zone
Revenue
Sales to external customers
Operating expenses
Operating income (loss)
Revenue from rehabilitation works
Cost of rehabilitation works
Interest income
Interest expense
Equity share in net loss of joint venture
Other income (expense)
Income before income tax
Provision for (benefit from) income tax
Net income (loss)
Other comprehensive income
Unrealized gain on AFS financial assets
Cumulative translation adjustment
Actuarial gain (loss) on pension liabilities - net
Total comprehensive income
Total comprehensive income attributable to:
Equity holders of Manila Water Company, Inc.
Non-controlling interests
Other information
Segment assets, exclusive of investment in associates and deferred tax assets
Investment in associates
Deferred tax assets
–
–
698,602
5,055,412
6,469,625
6,944,944
(6,944,944)
553,100
(1,616,715)
–
(214,979)
5,191,031
968,894
4,222,137
–
24,174
(Forward)
Outside
East Zone
Management
(In Thousands)
Contracts
503,574
231,917
256,639
(256,639)
8,448
(42,377)
206,762
(23,409)
381,341
53,496
124,558
44,892
–
–
–
–
–
–
44,892
–
1,865
(229)
–
–
11,530 –
Consolidated
6,548,921
8,004,147
5,877,838
(5,877,838)
264,518
(1,563,957)
206,762
186,875
7,098,345
1,595,053
1,865
(96,432)
11,530
3,644,853
67,675
158
–
–
–
3,644,853
830,163
158
Outside
East Zone
Management
(In Thousands)
Contracts
228,007
82,149
250,992
(250,992)
10,488
(35,837)
(7,860)
8,067
57,007
(11,509)
68,516
177,213
(8,493)
–
–
–
–
–
–
(8,493)
–
(8,493)
(13,385)
(836)
–
–
11,704 –
Consolidated
5,460,632
6,543,281
7,195,936
(7,195,936)
563,588
(1,652,552)
(7,860)
(206,912)
5,239,545
957,385
4,282,160
(13,385)
23,338
11,704
1,788,002
61,507
–
–
1,788,002
760,109
132
MANILA WATER ANNUAL REPORT 2013

2012
East Zone
Revenue
Sales to external customers
Operating expenses
Operating income
Revenue from rehabilitation works
Cost of rehabilitation works
Interest income
Interest expense
Equity share in net income of associates
Other income (expenses)
Income before income tax
Provision for income tax
Net income
Other comprehensive income
Unrealized gain (loss) on AFS financial assets
Cumulative translation adjustment
Actuarial gain (loss) on pension liabilities - net
Total comprehensive income
Total comprehensive income attributable to:
Equity holders of Manila Water Company, Inc.
Non-controlling interests
5,920,789
7,727,338
5,621,199
(5,621,199)
256,070
(1,521,580)
–
210,284
6,672,112
1,541,557
–
(96,203)
–
Other information
Segment assets, exclusive of investment in associates and deferred tax assets
Investment in associates
Deferred tax assets
Segment liabilities, exclusive of deferred tax liabilities
Deferred tax liabilities
Segment additions to property and equipment and
SCA
Depreciation and amortization
Noncash expenses other than depreciation and amortization*
* Pertains to the amount of impairment loss recognized during the year .
–
762,488
–
2011
East Zone
Revenue
Sales to external customers
Operating expenses
Operating income (loss)
Revenue from rehabilitation works
Cost of rehabilitation works
Interest income
Interest expense
Equity share in net loss of joint venture
Other income (expense)
Income before income tax
Provision for (benefit from) income tax
Net income (loss)
Other comprehensive income
Unrealized gain on AFS financial assets
Cumulative translation adjustment
Actuarial gain (loss) on pension liabilities - net
Total comprehensive income
Total comprehensive income attributable to:
Equity holders of Manila Water Company, Inc.
Non-controlling interests
Other information
Segment assets, exclusive of investment in associates and deferred tax assets
Investment in associates
Deferred tax assets
–
–
698,602
5,055,412
6,469,625
6,944,944
(6,944,944)
553,100
(1,616,715)
–
(214,979)
5,191,031
968,894
4,222,137
–
24,174
(Forward)
Outside
East Zone
Management
(In Thousands)
Contracts
503,574
231,917
256,639
(256,639)
8,448
(42,377)
206,762
(23,409)
381,341
53,496
124,558
44,892
–
–
–
–
–
–
44,892
–
1,865
(229)
–
–
11,530 –
Consolidated
6,548,921
8,004,147
5,877,838
(5,877,838)
264,518
(1,563,957)
206,762
186,875
7,098,345
1,595,053
1,865
(96,432)
11,530
3,644,853
67,675
158
–
–
–
3,644,853
830,163
158
Outside
East Zone
Management
(In Thousands)
Contracts
228,007
82,149
250,992
(250,992)
10,488
(35,837)
(7,860)
8,067
57,007
(11,509)
68,516
177,213
(8,493)
–
–
–
–
–
–
(8,493)
–
(8,493)
(13,385)
(836)
–
–
11,704 –
Consolidated
5,460,632
6,543,281
7,195,936
(7,195,936)
563,588
(1,652,552)
(7,860)
(206,912)
5,239,545
957,385
4,282,160
(13,385)
23,338
11,704
1,788,002
61,507
–
–
1,788,002
760,109
Segment liabilities, exclusive of deferred tax liabilities
Deferred tax liabilities
Segment additions to property and equipment and
SCA
Depreciation and amortization
Noncash expenses other than depreciation and amortization*
* Pertains to the amount of impairment loss recognized during the year .
East Zone
–
Outside
East Zone
213
Management
Contracts
–
Consolidated
213
2013, 2012 and 2011, respectively, and are included under the management contracts segment of the Group. The
Group does not have a single customer contributing more than 10% of its total revenue.
28.
Fair Value Measurement
The carrying amounts approximate fair values for the Group’s financial assets and liabilities due to its short-term maturities except for the following other financial liabilities as of December 31, 2013 and 2012:
Long-term debt
Customers’ guaranty deposits and other deposits
Service concession obligation
Carrying Value
2013
Fair Value Carrying Value
(In Thousands)
2012
Fair value
550,679
8,433,706
618,742
13,304,226
1,090,569
8,348,893
1,528,210
13,981,572
The methods and assumptions used by the Group in estimating the fair value of the other financial liabilities are:
Customers’ guaranty deposits and other deposits, long-term debt and service concession obligation - The fair values are estimated using the discounted cash flow methodology using the Group’s current incremental borrowing rates for similar borrowings with maturities consistent with those remaining for the liability being valued.
The discount rates used for Peso-denominated loans was 1.25% to 4.08% in 2013 and 1.37% to 7.11% in 2012 while the discount rates used for foreign currency-denominated loans ranged from 0.09% to 4.27% in 2013 and 0.13% to
3.01% in 2012.
Fair Value Hierarchy
The Group held the following financial assets measured at fair value as of December 31:
2013
Loans and receivables
Receivable from BWC
AFS financial assets
Debt
Equity shares
Level 1
103,300,716
–
Level 2
–
–
Level 3
–
–
Total
103,300,716
–
2012
Loans and receivables
Receivable from BWC
AFS financial assets
Debt
Equity shares
Level 1 Level 2 Level 3 Total
99,501,162
156,000,000
236,411,104
–
–
–
335,912,266
156,000,000
During the periods ended December 31, 2013 and 2012, there were no transfers between Level 1 and Level 2 fair value measurements and no transfers into and out of Level 3 fair value measurement.
133

Embedded Derivatives
Embedded Prepayment Options
1.
P =1.50 Billion Loans the option to prepay the whole loan or any part of the loan. For each Tranche, the Parent Company will pay the amount calculated as the greater of the present value of the remaining cash flows of the relevant Tranche discounted at the yield of the “comparable benchmark tenor” as shown on the Bloomberg MART1 page or 100% of the principal amount of the relevant Tranche being prepaid.
The prepayment option of the Parent Company effectively has two components: a long call option and a short put option. The long call option entitles the Parent Company to buy back the issued loan at the face amount while the short put option enables the counterparty bank to sell back the loan to the Parent Company at the market price
(present value of future cash flows discounted at prevailing market rates).
The long call option has a strike price equal to the face amount. Most likely, the Parent Company will exercise the long call option if the market value of the loan is higher than the face amount (in the money). However, if the market value of the loan is lower than the face amount (out of the money), the option will not be exercised.
On the other hand, the put option enables the counterparty bank to demand payment based on the market value of the loan. Therefore, the strike price of the option is identified as the market value of the loan. Based on analysis, the put option is not the usual option availed to protect the holder from future decline of an asset’s market value. By setting the strike price at market value, the put option provides protection to the holder, as a writer of the call option, from possible losses resulting from the exercise of the call option.
Based on the payoff analysis, the value of the long call and the short put options are offsetting resulting to net payoff of zero. Consequently, no value for the embedded derivatives is recognized.
2.
P the Parent Company. The embedded call option gives the Parent Company the right to redeem all but not in part the outstanding bonds on the 12th interest payment date. The amount payable to the bondholders in respect of such redemptions shall be calculated based on the principal amount of the bonds being redeemed, as the sum of
102% of the principal amount and accrued interest on the bonds on the optional redemption date. On issue date, the Group recognized separately the fair value of the embedded call option, resulting in recognition of a derivative
The embedded derivative is carried at FVPL while the loan premium is amortized at effective interest rate over the life of the loan. On October 23, 2011, the call option was exercised by the Parent Company.
3.
P
(see Note 16). The embedded call option gives the Parent Company the right to redeem all but not in part the outstanding notes starting on the 7th anniversary. The amount payable to the holder in respect of such redemptions shall be calculated based on the principal amount of the bonds being redeemed, as the sum of
102% of the principal amount and accrued interest on the notes on the optional redemption date.
As of December 31, 2011, the option was assessed as not clearly and closely related to the host contract since the amortized cost of the loan does not approximate the prepayment at each option exercise date. However, as of inception date, the value of the option is not material.
As of December 31, 2012, the option has been reassessed which resulted in the option as clearly and closely related to the host contract since the amortized cost of the loan approximates the prepayment at each option exercise date.
4.
P
2013 (see Note 16). The embedded call option gives the Parent Company the right to redeem all but not in part the outstanding notes starting on the 3rd anniversary. The amount payable to the holder in respect of such redemptions shall be calculated based on the principal amount of the bonds being redeemed, as the sum of
102%-100.5% of the principal amount and accrued interest on the notes, depending on the optional redemption date.
134
MANILA WATER ANNUAL REPORT 2013

Embedded Derivatives
Embedded Prepayment Options
1.
P =1.50 Billion Loans the option to prepay the whole loan or any part of the loan. For each Tranche, the Parent Company will pay the amount calculated as the greater of the present value of the remaining cash flows of the relevant Tranche discounted at the yield of the “comparable benchmark tenor” as shown on the Bloomberg MART1 page or 100% of the principal amount of the relevant Tranche being prepaid.
The prepayment option of the Parent Company effectively has two components: a long call option and a short put option. The long call option entitles the Parent Company to buy back the issued loan at the face amount while the short put option enables the counterparty bank to sell back the loan to the Parent Company at the market price
(present value of future cash flows discounted at prevailing market rates).
The long call option has a strike price equal to the face amount. Most likely, the Parent Company will exercise the long call option if the market value of the loan is higher than the face amount (in the money). However, if the market value of the loan is lower than the face amount (out of the money), the option will not be exercised.
On the other hand, the put option enables the counterparty bank to demand payment based on the market value of the loan. Therefore, the strike price of the option is identified as the market value of the loan. Based on analysis, the put option is not the usual option availed to protect the holder from future decline of an asset’s market value. By setting the strike price at market value, the put option provides protection to the holder, as a writer of the call option, from possible losses resulting from the exercise of the call option.
Based on the payoff analysis, the value of the long call and the short put options are offsetting resulting to net payoff of zero. Consequently, no value for the embedded derivatives is recognized.
2.
P the Parent Company. The embedded call option gives the Parent Company the right to redeem all but not in part the outstanding bonds on the 12th interest payment date. The amount payable to the bondholders in respect of such redemptions shall be calculated based on the principal amount of the bonds being redeemed, as the sum of
102% of the principal amount and accrued interest on the bonds on the optional redemption date. On issue date, the Group recognized separately the fair value of the embedded call option, resulting in recognition of a derivative
The embedded derivative is carried at FVPL while the loan premium is amortized at effective interest rate over the life of the loan. On October 23, 2011, the call option was exercised by the Parent Company.
3.
P
(see Note 16). The embedded call option gives the Parent Company the right to redeem all but not in part the outstanding notes starting on the 7th anniversary. The amount payable to the holder in respect of such redemptions shall be calculated based on the principal amount of the bonds being redeemed, as the sum of
102% of the principal amount and accrued interest on the notes on the optional redemption date.
As of December 31, 2011, the option was assessed as not clearly and closely related to the host contract since the amortized cost of the loan does not approximate the prepayment at each option exercise date. However, as of inception date, the value of the option is not material.
As of December 31, 2012, the option has been reassessed which resulted in the option as clearly and closely related to the host contract since the amortized cost of the loan approximates the prepayment at each option exercise date.
4.
P
2013 (see Note 16). The embedded call option gives the Parent Company the right to redeem all but not in part the outstanding notes starting on the 3rd anniversary. The amount payable to the holder in respect of such redemptions shall be calculated based on the principal amount of the bonds being redeemed, as the sum of
102%-100.5% of the principal amount and accrued interest on the notes, depending on the optional redemption date.
As of December 31, 2013, the option was assessed as clearly and closely related to the host contract since the amortized cost of the loan approximates the prepayment at each option exercise date. However, as of inception date, the value of the option is not material.
29.
Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise of cash and cash equivalents, short-term cash investments, AFS financial assets, long-term debt and service concession obligation. The main purpose of the Group’s financial instruments is to fund its operations and capital expenditures. The main risks arising from the use of financial instruments are interest rate risk, liquidity risk, foreign exchange risk, equity price rate risk and credit risk. The Group has other various financial assets such as trade receivables and payables which arise directly from the conduct of its operations.
The Parent Company’s BOD reviews and approves the policies for managing each of these risks. The Group monitors risks arising from all financial instruments and regularly report financial management activities and the results of these activities to the Parent Company’s BOD.
The Group’s risk management policies are summarized below:
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to interest rate risk relates primarily to its financial instruments with floating and/or fixed rates. Fixed rate financial instruments are subject to fair value interest rate risk while floating rate financial instruments are subject to cash flow interest rate risk.
For cash flow interest rate risk, the Group’s policy is to manage its interest cost using a mix of fixed and variable rate debts. As of December 31, 2013 and 2012, approximately 67% and 61%, respectively, of the Group’s borrowings have fixed rates of interest.
For fair value interest rate risk, the Group’s investment policy requires it to buy and hold AFS financial assets, unless the need to sell arises, and to reduce the duration gap between financial assets and financial liabilities to minimize interest rate risk. Debt securities are also marked-to-market monthly to reflect and account for both unrealized gains and losses.
The following tables show information about the nominal amount and maturity profile of the Group’s financial instruments that are exposed to cash flow and fair value interest rate risks.
2013
Within
1 year 1-2 years 2-3 years 3-4 years
(In Thousands)
More than
4 years Total
Cash in banks and Cash equivalents
Interest Rates (Range)
0.375% to 3.825%
Short term cash investments
AFS Financial Assets
Bonds
Government Securities
RTBN
Interest Rate
6.25%
Corporate Bonds
Interest Rates (Range)
8.25%
94,345
52,018
51,283
103,301
–
–
–
–
–
–
–
–
–
–
–
–
P =6,778,968
– 94,345
– 52,018
–
–
51,283
103,301
P =6,976,614
135

2012
Cash in banks and Cash equivalents
Interest Rates (Range)
1.20% to 3.75%
AFS Financial Assets
Bonds
Government Securities
RTBN
Interest Rate
7.125%
Corporate Bonds
Interest Rates (Range)
2.3% to 8.25%
Within
1 year 1-2 years 2-3 years 3-4 years
(In Thousands)
More than
4 years Total
P =5,537,728
52,548
92,795
145,343
53,365
53,437
106,802
–
–
–
–
–
–
– 105,913
83,767
83,767
229,999
335,912
P =5,873,640
136
MANILA WATER ANNUAL REPORT 2013

2012
Cash in banks and Cash equivalents
Interest Rates (Range)
1.20% to 3.75%
AFS Financial Assets
Bonds
Government Securities
RTBN
Interest Rate
7.125%
Corporate Bonds
Interest Rates (Range)
2.3% to 8.25%
Within
1 year 1-2 years 2-3 years 3-4 years
(In Thousands)
More than
4 years Total
P =5,537,728
52,548
92,795
145,343
53,365
53,437
106,802
–
–
–
–
–
–
– 105,913
83,767
83,767
229,999
335,912
P =5,873,640
2013
Liabilities:
Long-Term Debt
Fixed Rate (exposed to fair value risk)
EIB Loan - JPY
Interest rate
EIB Loan - USD
Interest rate
IFC Loan - JPY
Interest rate
IFC Loan – USD
Interest rate
Within 1 year
¥466,941,294
2.10 - 2.29%
$3,750,000
5.08%
¥44,048,000
4.57%
$2,000,000
4.57%
1-2 years
¥466,941,294
$3,750,000
¥44,048,000
$2,000,000
2-3 years
¥466,941,294
$3,750,000
¥44,048,000
$1,000,000
3-4 years
¥233,470,644
$1,875,000
¥44,048,000
–
4-5 years
–
–
¥22,024,000
–
More than
5 years
–
–
–
–
Total
(In JPY)
¥1,634,294,526
–
¥198,216,000
–
P =4,925,000,000 P =4,850,000,000 – –
Interest rate 6.34% - 7.33%
P =4,850,000,000 –
Interest rate 4.42%
– –
Interest rate 6.73% - 7.58%
– –
Interest rate
Interest rate
2.25%-9.48%
–
2.25%-9.48%
–
7.25%
–
– –
–
Interest rate
Floating Rate (exposed to cash flow risk)
NEXI Loan
Interest rate
EIB Loan
Interest rate
IFC Loan - JPY
Interest rate
IFC Loan - USD
Interest rate
MTSP Loan
Interest rate
$18,750,000
6m Libor plus margin
¥256,250,000
6m Libor plus margin
¥243,280,000
6m Libor plus margin
$2,000,000
6m Libor plus margin
¥340,366,724
6m Libor plus margin
$18,750,000
¥256,250,000
¥243,280,000
$2,000,000
¥340,366,724
$18,750,000
¥256,250,000
¥243,280,000
$1,000,000
¥340,366,724
$18,750,000
¥128,125,000
¥243,280,000
–
¥340,366,724
$18,750,000
–
¥121,640,000
–
¥340,366,724
$31,589,236
–
–
–
¥1,160,308,304
–
¥896,875,000
¥1,094,760,000
–
¥2,862,141,926
– –
Interest rate
¥6,686,287,452
Interest on financial instruments classified as floating rate is repriced on a semi-annual basis. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument.
Total - Gross
(In USD)
–
$13,125,000
–
$5,000,000
– P
– P
–
–
–
–
$125,339,236
–
–
Total - Gross
(In PHP)
$5,000,000
– P
–
P
137

2012
Liabilities:
Long-Term Debt
Fixed Rate (exposed to fair value risk)
Within 1 year 1-2 years 2-3 years 3-4 years 4-5 years
More than
5 years
Total
(In JPY)
– – – – – –
Interest rate 8.0 - 9.0%
– – – – – –
Interest rate
EIB Loan - JPY
Interest rate
EIB Loan - USD
Interest rate
IFC Loan - JPY
Interest rate
IFC Loan – USD
Interest rate
6.5 - 7.5%
¥466,941,294
2.10 - 2.29%
$3,750,000
5.08%
¥44,048,000
4.57%
$2,000,000
4.57%
¥466,941,294
$3,750,000
¥44,048,000
$2,000,000
¥466,941,294
$3,750,000
¥44,048,000
$2,000,000
¥466,941,294
$3,750,000
¥44,048,000
$1,000,000
¥233,470,644
$1,875,000
¥44,048,000
–
–
–
¥22,024,000
–
¥2,101,235,820
–
¥242,264,000
–
P =4,925,000,000 P =4,850,000,000 –
Interest rate 6.34% - 7.33%
–
Interest rate
Interest rate
6.73% - 7.58%
–
2.25%-9.48%
–
2.25%-9.48%
–
–
–
Interest rate
Floating Rate (exposed to cash flow risk)
NEXI Loan
Interest rate
EIB Loan
Interest rate
IFC Loan - JPY
Interest rate
IFC Loan - USD
Interest rate
MTSP Loan
Interest rate
Interest rate
$18,750,000
6m Libor plus margin
¥256,250,000
6m Libor plus margin
¥243,280,000
6m Libor plus margin
$2,000,000
6m Libor plus margin
¥340,099,105
6m Libor plus margin
–
6m Libor plus margin
$18,750,000
¥256,250,000
¥243,280,000
$2,000,000
¥340,099,105
$18,750,000
¥256,250,000
¥243,280,000
$2,000,000
¥340,099,105
$18,750,000
¥256,250,000
¥243,280,000
$1,000,000
¥340,099,105
$18,750,000
¥128,125,000
¥243,280,000
–
¥340,099,105
$56,250,000
–
¥121,640,000
–
¥1,530,975,249
–
¥1,153,125,000
¥1,338,040,000
–
¥3,231,470,774
–
¥8,066,135,594
Interest on financial instruments classified as floating rate is repriced on a semi-annual basis. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument.
Total - Gross
(In USD)
– P
– P
–
$16,875,000
–
$7,000,000
P
– P
–
–
–
Total - Gross
(In PHP)
$150,000,000 P
–
–
$7,000,000
– P
–
138
MANILA WATER ANNUAL REPORT 2013

The following tables demonstrate the sensitivity of the Group’s income before income tax and OCI, gross of tax, to a reasonably possible change in interest rates on December 31, 2013 and 2012, with all variables held constant
(through the impact on floating rate borrowings and AFS debt securities).
2013
Floating rate borrowings
Available-for-sale debt securities
Changes in basis points
100
(100)
50
(50)
Effect on
Income before
Income Tax Effect on OCI
(In Thousands)
86,318
–
–
–
(311)
312
2012
Floating rate borrowings
Available-for-sale debt securities
Changes in basis points
100
(100)
50
(50)
Effect on
Income before
Income Tax Effect on OCI
(In Thousands)
84,790
–
–
–
(1,239)
1,249
Foreign exchange risk
The Group’s foreign exchange risk results primarily from movements of PHP against the USD and JPY. Majority of revenues are generated in PHP, and substantially all capital expenditures are also in PHP. Approximately 40% and
47% of debt as of December 31, 2013 and 2012, respectively, are denominated in foreign currency. Under
Amendment 1 of the Agreement, however, the Parent Company has a natural hedge on its foreign exchange risks on its loans and concession fee payments through a recovery mechanism in the tariff (see Note 1).
Information on the Group’s foreign currency-denominated monetary assets and liabilities and their Philippine Peso equivalents are as follows:
December 31, 2013
Original
Currency
Peso
Equivalent
(In Thousands)
December 31, 2012
Original
Currency
Peso
Equivalent
(In Thousands )
Assets
Cash and cash equivalents
USD
VND
AUD
SGD
$3,779
VND21,698,540
AUD6
SGD123
45,589
242
4,291
$12,659
VND1,291,607
AUD1,035
SGD1
2,583
44,166
33
Liabilities
Long-term debt
YEN loan
USD loan
Service concession obligations
YEN loan
USD loan
French Franc (FRF) loan
Net foreign currency-denominated liabilities
¥6,567,179
$148,168
¥1,363,650
$86,462
FRF 2,009
6,577,905
578,051
3,838,473
18,603
13,796,859
¥7,973,051
$180,875
¥607,652
$88,374
FRF 2,439
7,424,919
290,883
3,627,777
20,206
15,180,455
139

The following table demonstrates the sensitivity to a reasonably possible change in foreign exchange rates, with all variables held constant, of the Group’s income before tax (due to changes in the fair value of monetary assets and liabilities taking into account the effect of the natural hedge due to the FCDA recovery mechanism) as of
December 31, 2013 and 2012:
2013
Increase/Decrease in
Foreign Exchange Rates
Income before income tax
(In Thousands)
Dollar
(0.19) 1,006
2012
Increase/Decrease in
Foreign Exchange Rates
Income before income tax
(In Thousands)
Dollar
(0.47) 2,934
The Group does not expect any movement of the VND, SGD and FRF against the Philippine Peso to have a significant effect on the Group’s profit before tax.
Equity price risk
The Group’s equity price risk exposure at year-end relates to financial assets whose values will fluctuate as a result of changes in market prices, principally, equity securities classified as AFS financial assets.
Such investment securities are subject to price risk due to changes in market values of instruments arising either from factors specific to individual instruments or their issuers or factors affecting all instruments traded in the market.
The Parent Company’s investment policy requires it to manage such risks by setting and monitoring objectives and constraints on investments, diversification plan, limits on investment in each sector and market.
As of December 31, 2013 and 2012, the fair values of equity investments classified as AFS financial assets amounted
In 2013, there was no analysis made to determine impact in the possible movement in the PSE index since the security as of year-end has already matured. In 2012, the analysis below is performed for reasonably possible movements in the PSE index with all other variables held constant. The impact on equity (due to changes in fair value of equity securities classified as AFS financial assets) is arrived at using the change in variable and the specific adjusted beta of each share of stock the Group holds at the reporting date. Adjusted beta is the forecasted measure of the volatility of a security or a portfolio in comparison to the market as a whole. The impact on the Group’s equity already excludes the impact on transactions affecting profit or loss.
2012
Market Index
PSE index
Change in variable
(In Thousands)
23%
(23)
Impact on equity
(8,498)
In 2012, the change in variable was derived from the percentage changes of the composite PSE index for the past three years.
Credit risk
The Group trades only with recognized, creditworthy third parties. It is the Group’s policy that except for connection fees and other highly meritorious cases, the Group does not offer credit terms to its customers.
With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, short-term cash investments and AFS financial assets, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Group transacts only with institutions or banks which have demonstrated financial soundness for the past five years.
140
MANILA WATER ANNUAL REPORT 2013

The following table demonstrates the sensitivity to a reasonably possible change in foreign exchange rates, with all variables held constant, of the Group’s income before tax (due to changes in the fair value of monetary assets and liabilities taking into account the effect of the natural hedge due to the FCDA recovery mechanism) as of
December 31, 2013 and 2012:
2013
Increase/Decrease in
Foreign Exchange Rates
Income before income tax
(In Thousands)
Dollar
(0.19) 1,006
2012
Increase/Decrease in
Foreign Exchange Rates
Income before income tax
(In Thousands)
Dollar
(0.47) 2,934
The Group does not expect any movement of the VND, SGD and FRF against the Philippine Peso to have a significant effect on the Group’s profit before tax.
Equity price risk
The Group’s equity price risk exposure at year-end relates to financial assets whose values will fluctuate as a result of changes in market prices, principally, equity securities classified as AFS financial assets.
Such investment securities are subject to price risk due to changes in market values of instruments arising either from factors specific to individual instruments or their issuers or factors affecting all instruments traded in the market.
The Parent Company’s investment policy requires it to manage such risks by setting and monitoring objectives and constraints on investments, diversification plan, limits on investment in each sector and market.
As of December 31, 2013 and 2012, the fair values of equity investments classified as AFS financial assets amounted
In 2013, there was no analysis made to determine impact in the possible movement in the PSE index since the security as of year-end has already matured. In 2012, the analysis below is performed for reasonably possible movements in the PSE index with all other variables held constant. The impact on equity (due to changes in fair value of equity securities classified as AFS financial assets) is arrived at using the change in variable and the specific adjusted beta of each share of stock the Group holds at the reporting date. Adjusted beta is the forecasted measure of the volatility of a security or a portfolio in comparison to the market as a whole. The impact on the Group’s equity already excludes the impact on transactions affecting profit or loss.
2012
Market Index
PSE index
Change in variable
(In Thousands)
23%
(23)
Impact on equity
(8,498)
In 2012, the change in variable was derived from the percentage changes of the composite PSE index for the past three years.
Credit risk
The Group trades only with recognized, creditworthy third parties. It is the Group’s policy that except for connection fees and other highly meritorious cases, the Group does not offer credit terms to its customers.
With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, short-term cash investments and AFS financial assets, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Group transacts only with institutions or banks which have demonstrated financial soundness for the past five years.
In respect of receivables from customers, credit risk is managed primarily through credit reviews and an analysis of receivables on a continuous basis. Customer payments are facilitated through various collection modes including the use of postdated checks and auto-debit arrangements.
The Group has no significant concentrations of credit risk.
The maximum exposure to credit risk for the components of the consolidated statements of financial position is equal to its carrying value.
As of December 31, 2013 and 2012, the credit quality per class of the Group’s financial assets are as follows:
2013
Neither Past Due nor Impaired
High Grade Standard
Past Due and
Impaired
Cash and cash equivalents*
Short term cash investments
Receivables
Customers
Residential
Commercial
Semi-business
Industrial
Concession financial receivable
Employees
Interest from banks
Receivable from SAWACO
Receivable from BWC
Others
AFS financial assets
Quoted
Unquoted
Total
* Excludes cash on hand.
94,344,600
838,458,129
113,205,385
44,372,521
32,559,907
681,363,724
191,857
–
–
–
–
103,300,716
2,409,290
–
7,636,211
3,587,820
1,106,773
–
–
54,255,111
11,550,628
101,904,224
544,373,611
71,728,297
–
–
–
460,288,640
107,303,430
32,118,694
4,962,559
–
–
–
–
–
78,750,136
Total
94,344,600
1,306,382,980
224,096,635
77,597,988
37,522,466
681,363,724
54,446,968
11,550,628
101,904,224
544,373,611
150,478,433
–
–
103,300,716
2,409,290
P =10,168,740,714
2012
Neither Past Due nor Impaired
High Grade Standard
Past Due and
Impaired Total
Cash and cash equivalents*
Receivables
Customers
Residential
Commercial
Semi-business
Industrial
Employees
Interest from banks
Receivable from SAWACO
Receivable from BWC
Others
AFS financial assets
Quoted
Unquoted
Total
* Excludes cash on hand.
826,756,610
204,395,769
58,616,918
46,252,310
120,832
–
–
–
–
408,145,865
86,175,691
7,529,639
6,477,918
1,462,067
–
34,169,947
17,171,498
142,411,840
572,878,039
7,460,189
–
–
426,063,068
97,397,951
30,282,894
3,856,849
–
–
–
–
70,177,461
–
–
1,260,349,317
308,271,638
90,361,879
50,109,159
34,290,779
17,171,498
142,411,840
572,878,039
77,637,650
408,145,865
86,175,691
As of December 31, 2013 and 2012, the Group does not have financial assets that are ‘past due but not impaired’.
The credit quality of the financial assets was determined as follows:
Cash and cash equivalents and short-term cash investments are placed in various banks. Material amounts are held by banks which belong to the top 5 banks in the country. The rest are held by local banks that have good reputation and low probability of insolvency. Management assesses the quality of these assets as high grade.
Receivables which are classified as high grade pertains to receivables that are collectible within 7 days from bill delivery. Standard rated receivables are collectible from 11 to 30 days from bill delivery.
AFS financial assets, which are assessed by management as high grade, are investments in debt and equity instruments in companies with good financial capacity and investments in debt securities issued by the government.
141

Liquidity risk
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, debentures, preference shares, leases and hire purchase contracts. The Group’s policy is to maintain a level of cash that is sufficient to fund its monthly cash requirements for the next 4 to 6 months and customers’ guaranty deposits. Capital expenditures are funded through long-term debt, while operating expenses and working capital requirements are sufficiently funded through cash collections.
The Group’s financial assets used for liquidity management based on their maturities are as follows:
2013
Within 1 Year 1-5 years
More than
5 years Total - Gross
Assets:
Cash and cash equivalents
Short term cash investments
Receivables:
Customers
Employees
SAWACO
Interest from banks
Others
AFS financial assets
94,344,600
1,645,600,069
54,446,968
101,904,224
11,550,628
150,478,433
103,300,716
–
–
–
–
–
–
–
–
–
–
–
–
–
–
94,344,600
1,645,600,069
54,446,968
101,904,224
11,550,628
150,478,433
103,300,716
Within 1 Year
2012
1-5 years
More than
5 years Total - Gross
Assets:
Cash and cash equivalents
Receivables:
Customers
Employees
SAWACO
Interest from banks
Others
AFS financial assets
1,709,091,993
34,290,779
142,411,840
17,171,498
77,637,650
145,343,005
–
–
–
–
–
106,802,860
–
–
–
–
–
83,766,401
1,709,091,993
34,290,779
142,411,840
17,171,498
77,637,650
335,912,266
The Group’s financial liabilities based on contractual undiscounted payments:
Within 1 Year
2013
1-5 years
(In Thousands)
More than
5 years
Liabilities:
Accounts and other payables
Payables to related parties
Long-term debt*
Service concession obligation*
Customers’ guaranty deposits and other deposits
139,018,853
3,082,880,022
819,167,075
–
–
14,660,989,105
2,901,469,520
–
–
13,336,795,556
9,821,579,971
550,678,621
Total - Gross
139,018,853
31,080,664,683
13,542,216,566
550,678,621
* Includes contractual interest cash flows
Within 1 Year
2012
1-5 years
(In Thousands)
More than
5 years Total - Gross
Liabilities:
Accounts and other payables
Payables to related parties
Long-term debt*
Service concession obligation*
Customers’ guaranty deposits and other deposits
27,559,656
5,596,826,512
1,023,043,868
–
–
15,251,913,471
3,642,927,014
–
–
10,163,225,638
11,328,619,056
1,090,569,346
27,559,656
31,011,965,621
15,994,589,938
1,090,569,346
* Includes contractual interest cash flows
Capital management
The primary objective of the Group’s capital management strategy is to ensure that it maintains a healthy capital structure, in order to maintain a strong credit standing while it maximizes shareholder value.
The Group closely manages its capital structure vis-à-vis a certain target gearing ratio, which is total debt (less service concession obligation) divided by the sum of the total stockholders’ equity and total debt (less service concession obligation). The Group’s target gearing ratio is 60%. This target is to be achieved over the next 5 years, by managing the Group’s level of borrowings and dividend payments to shareholders.
142
MANILA WATER ANNUAL REPORT 2013

Liquidity risk
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, debentures, preference shares, leases and hire purchase contracts. The Group’s policy is to maintain a level of cash that is sufficient to fund its monthly cash requirements for the next 4 to 6 months and customers’ guaranty deposits. Capital expenditures are funded through long-term debt, while operating expenses and working capital requirements are sufficiently funded through cash collections.
The Group’s financial assets used for liquidity management based on their maturities are as follows:
2013
Within 1 Year 1-5 years
More than
5 years Total - Gross
Assets:
Cash and cash equivalents
Short term cash investments
Receivables:
Customers
Employees
SAWACO
Interest from banks
Others
AFS financial assets
94,344,600
1,645,600,069
54,446,968
101,904,224
11,550,628
150,478,433
103,300,716
–
–
–
–
–
–
–
–
–
–
–
–
–
–
94,344,600
1,645,600,069
54,446,968
101,904,224
11,550,628
150,478,433
103,300,716
Within 1 Year
2012
1-5 years
More than
5 years Total - Gross
Assets:
Cash and cash equivalents
Receivables:
Customers
Employees
SAWACO
Interest from banks
Others
AFS financial assets
1,709,091,993
34,290,779
142,411,840
17,171,498
77,637,650
145,343,005
–
–
–
–
–
106,802,860
–
–
–
–
–
83,766,401
1,709,091,993
34,290,779
142,411,840
17,171,498
77,637,650
335,912,266
The Group’s financial liabilities based on contractual undiscounted payments:
Within 1 Year
2013
1-5 years
(In Thousands)
More than
5 years
Liabilities:
Accounts and other payables
Payables to related parties
Long-term debt*
Service concession obligation*
Customers’ guaranty deposits and other deposits
139,018,853
3,082,880,022
819,167,075
–
–
14,660,989,105
2,901,469,520
–
–
13,336,795,556
9,821,579,971
550,678,621
Total - Gross
139,018,853
31,080,664,683
13,542,216,566
550,678,621
* Includes contractual interest cash flows
Within 1 Year
2012
1-5 years
(In Thousands)
More than
5 years Total - Gross
Liabilities:
Accounts and other payables
Payables to related parties
Long-term debt*
Service concession obligation*
Customers’ guaranty deposits and other deposits
27,559,656
5,596,826,512
1,023,043,868
–
–
15,251,913,471
3,642,927,014
–
–
10,163,225,638
11,328,619,056
1,090,569,346
27,559,656
31,011,965,621
15,994,589,938
1,090,569,346
* Includes contractual interest cash flows
Capital management
The primary objective of the Group’s capital management strategy is to ensure that it maintains a healthy capital structure, in order to maintain a strong credit standing while it maximizes shareholder value.
The Group closely manages its capital structure vis-à-vis a certain target gearing ratio, which is total debt (less service concession obligation) divided by the sum of the total stockholders’ equity and total debt (less service concession obligation). The Group’s target gearing ratio is 60%. This target is to be achieved over the next 5 years, by managing the Group’s level of borrowings and dividend payments to shareholders.
Total liabilities
Less service concession obligation
Total stockholders’ equity
Total
Gearing ratio
2013 2012
P =40,372,759,948
8,433,705,593 8,348,893,431
33,369,762,461
31,054,056,755
32,023,866,517
26,754,269,230
P =58,778,135,747
52% 54%
For purposes of computing its net debt, the Group includes the outstanding balance of its long-term debt (including current portion), accounts and other payables, less cash and cash equivalents, short-term cash investments and AFS financial assets. To compute its total capital, the Group uses the total stockholders’ equity.
2013 2012
P =40,372,759,948 Total liabilities
Less:
Total service concession obligation
Cash and cash equivalents
Short-term cash investments
AFS financial assets
Net Debt
Total stockholders’ equity
Total net debt and stockholders’ equity
Total net debt and equity ratio
8,433,705,593
6,779,780,845
94,344,600
105,710,006
15,413,541,044
26,389,927,010
31,054,056,755
25,989,393,877
26,754,269,230
P =52,743,663,107
46%
8,348,893,431
5,540,151,084
–
494,321,556
14,383,366,071
49%
30.
Commitments
Parent Company’s Concession Agreement
The significant commitments of the Parent Company under the Agreement and Extension are as follows: a.
To pay MWSS concession fees (see Note 10); b.
To post a performance bond, bank guarantee or other security acceptable to MWSS amounting to
US$70.00 million in favor of MWSS as a bond for the full and prompt performance of the Parent Company’s obligations under the Agreement. The aggregate amounts drawable in one or more installments under such performance bond during the Rate Rebasing Period to which it relates are set out below.
Rate Rebasing Period
First (August 1, 1997 - December 31, 2002)
Second (January 1, 2003 - December 31, 2007)
Third (January 1, 2008 - December 31, 2012)
Fourth (January 1, 2013 - December 31, 2017)
Fifth (January 1, 2018 - December 31, 2022)
Sixth (January 1, 2023 - December 31, 2027)
Seventh (January 1, 2028 - December 31, 2032)
Eighth (January 1, 2033 - May 6, 2037)
Aggregate amount drawable under performance bond
(in US$ millions)
US$70.00
70.00
60.00
60.00
50.00
50.00
50.00
50.00
Within 30 days from the commencement of each renewal date, the Parent Company shall cause the performance bond to be reinstated in the full amount set forth above as applicable for that year.
Upon not less than 10-day written notice to the Parent Company, MWSS may make one or more drawings under the performance bond relating to a Rate Rebasing Period to cover amounts due to MWSS during that period; provided, however, that no such drawing shall be made in respect of any claim that has been submitted to the
Appeals Panel for adjudication until the Appeals Panel has handed down its decision on the matter.
In the event that any amount payable to MWSS by the Group is not paid when due, such amount shall accrue interest at a rate equal to that of a 364-day Treasury Bill for each day it remains unpaid; c.
With the Extension, the Parent Company agreed to increase its annual share in MWSS operating budget by
143

d.
To meet certain specific commitments in respect of the provision of water and sewerage services in the East
Zone, unless deferred by MWSS-RO due to unforeseen circumstances or modified as a result of rate rebasing exercise; e.
To operate, maintain, renew and, as appropriate, decommission facilities in a manner consistent with the National
Building Standards and best industrial practices so that, at all times, the water and sewerage system in the East
Zone is capable of meeting the service obligations (as such obligations may be revised from time to time by the
MWSS-RO following consultation with the Parent Company); f.
To repair and correct, on a priority basis, any defect in the facilities that could adversely affect public health or welfare, or cause damage to persons or third party property; g.
To ensure that at all times, the Parent Company has sufficient financial, material and personnel resources available to meet its obligations under the Agreement; and h.
To ensure that no debt or liability that would mature after the life of the Agreement will be incurred unless with the approval of MWSS (see Note 1).
Failure of the Parent Company to perform any of its obligations that is deemed material by MWSS-RO may cause the
Agreement to be terminated
LAWC’s Concession Agreement
The significant commitments of LAWC under its concession agreement with POL are as follows: a.
To pay POL concession fees (see Note 10); b.
To manage, occupy, operate, repair, maintain, decommission, and refurbish the transferred facilities; c.
To design, construct and commission the new facilities during the cooperation period; d.
To provide and manage the services; e.
To bill and collect payment from the customer for all services; f.
To extract raw water exclusively from all sources of raw water; and g.
To negotiate in good faith with POL any amendment or supplement to the concession agreement to establish, operate and maintain wastewater facilities if doing such is financially and economically feasible.
BIWC’s Concession Agreement
The significant commitments of BIWC under its concession agreement with TIEZA are as follows: a.
To meet certain specific commitments in respect of the provision of water and sewerage services in the service area, unless deferred by the TIEZA Regulatory Office (TIEZA-RO) due to unforeseen circumstances or modified as a result of rate rebasing exercise; b.
To pay concession fees, subject to the following provisions: i.
Assumption of all liabilities of the BWSS as of commencement date and service such liabilities as they fall due. BWSS has jurisdiction, supervision and control over all waterworks and sewerage systems within
Boracay Island prior to commencement date. The servicing of such liabilities shall be applied to the concession fees; ii.
Payment of an amount equivalent to 5% of the monthly gross revenue of BIWC, inclusive of all applicable taxes. Such payments shall be subject to adjustment based on the gross revenue of BIWC as reflected in its separate financial statements; iii.
Provision of the amount of the TIEZA BOD’s approved budget in 2012, payable semi-annually and not exceeding:
Month
January
July
Maximum Amount
10,000,000
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MANILA WATER ANNUAL REPORT 2013

d.
To meet certain specific commitments in respect of the provision of water and sewerage services in the East
Zone, unless deferred by MWSS-RO due to unforeseen circumstances or modified as a result of rate rebasing exercise; e.
To operate, maintain, renew and, as appropriate, decommission facilities in a manner consistent with the National
Building Standards and best industrial practices so that, at all times, the water and sewerage system in the East
Zone is capable of meeting the service obligations (as such obligations may be revised from time to time by the
MWSS-RO following consultation with the Parent Company); f.
To repair and correct, on a priority basis, any defect in the facilities that could adversely affect public health or welfare, or cause damage to persons or third party property; g.
To ensure that at all times, the Parent Company has sufficient financial, material and personnel resources available to meet its obligations under the Agreement; and h.
To ensure that no debt or liability that would mature after the life of the Agreement will be incurred unless with the approval of MWSS (see Note 1).
Failure of the Parent Company to perform any of its obligations that is deemed material by MWSS-RO may cause the
Agreement to be terminated
LAWC’s Concession Agreement
The significant commitments of LAWC under its concession agreement with POL are as follows: a.
To pay POL concession fees (see Note 10); b.
To manage, occupy, operate, repair, maintain, decommission, and refurbish the transferred facilities; c.
To design, construct and commission the new facilities during the cooperation period; d.
To provide and manage the services; e.
To bill and collect payment from the customer for all services; f.
To extract raw water exclusively from all sources of raw water; and g.
To negotiate in good faith with POL any amendment or supplement to the concession agreement to establish, operate and maintain wastewater facilities if doing such is financially and economically feasible.
BIWC’s Concession Agreement
The significant commitments of BIWC under its concession agreement with TIEZA are as follows: a.
To meet certain specific commitments in respect of the provision of water and sewerage services in the service area, unless deferred by the TIEZA Regulatory Office (TIEZA-RO) due to unforeseen circumstances or modified as a result of rate rebasing exercise; b.
To pay concession fees, subject to the following provisions: i.
Assumption of all liabilities of the BWSS as of commencement date and service such liabilities as they fall due. BWSS has jurisdiction, supervision and control over all waterworks and sewerage systems within
Boracay Island prior to commencement date. The servicing of such liabilities shall be applied to the concession fees; ii.
Payment of an amount equivalent to 5% of the monthly gross revenue of BIWC, inclusive of all applicable taxes. Such payments shall be subject to adjustment based on the gross revenue of BIWC as reflected in its separate financial statements; iii.
Provision of the amount of the TIEZA BOD’s approved budget in 2012, payable semi-annually and not exceeding:
Month
January
July
Maximum Amount
10,000,000 iv.
Provision of the annual operating budget of the TIEZA-RO, payable in 2 equal tranches in January and July and not exceeding:
Year
2011
2012
2013 and beyond
Maximum Amount
20,000,000 previous year, subject to annual
CPI adjustment c.
To establish, at Boracay Island, a TIEZA-RO building with staff house, the cost of which should be reasonable and prudent; d.
To pay an incentive fee pegged at P e.
To raise financing for the improvement and expansion of the BWSS water and wastewater facilities; f.
To operate, maintain, repair, improve, renew and, as appropriate, decommission facilities, as well as to operate and maintain the drainage system upon its completion, in a manner consistent with the National Building
Standards and best industrial practices so that, at all times, the water and sewerage system in the service area is capable of meeting the service obligations (as such obligations may be revised from time to time by the TIEZA-
RO following consultation with BIWC); g.
To repair and correct, on a priority basis, any defect in the facilities that could adversely affect public health or welfare, or cause damage to persons or third party property; and h.
To ensure that at all times, BIWC has sufficient financial, material and personnel resources available to meet its obligations under the Concession Agreement.
In addition, the Parent Company, as the main proponent of BIWC shall post a bank security in the amount of
US$2.50 million to secure the Parent Company’s and BIWC’s performance of their respective obligations under the agreement. The amount of the performance security shall be reduced by MWC following the schedule below:
Rate Rebasing Period
First
Second
Third
Fourth
Fifth
Amount of
Performance Security
(in US$ Millions)
US$2.50
2.50
1.10
1.10
1.10
On or before the start of each year, BIWC shall cause the performance security to be reinstated in the full amount set forth as applicable for that year.
Upon not less than 10 days written notice to BIWC, TIEZA may take one or more drawings under the performance security relating to a Rate Rebasing Period to cover amounts due to TIEZA during that period; provided, however, that no such drawing shall be made in respect of any claim that has been submitted to the Arbitration Panel for adjudication until the Arbitration Panel has handed its decision on the matter.
In the event that any amount payable to TIEZA by BIWC is not paid when due, such amount shall accrue interest at a rate equal to that of a 364-day Treasury Bill for each day it remains unpaid.
Failure of BIWC to perform any of its obligations that is deemed material by TIEZA-RO may cause the concession agreement to be terminated.
Technical Services Agreement
Simultaneous with the execution of BIWC’s concession agreement, BIWC and the Parent Company executed a
Technical Services Agreement by which the Parent Company is being paid by BIWC a technical services fee equivalent to 4% of the annual gross revenue of BIWC, for rendering the following services to BIWC: a.
Financial management, including billing and collection services, accounting methods and financial control devices; and b.
Operations and project management, including facility operations and maintenance, and infrastructure project management.
145

CWC’s Concession Agreement
The significant commitments of CWC under its concession agreement with CDC are follows: a.
To pay franchise and rental fees of CDC; b.
Finance, design, and construct new facilities - defined as any improvement and extension works to (i) all existing facilities - defined as all fixed and movable assets specifically listed in the concession agreement; (ii) construction work - defined as the scope of construction work set out in the concession agreement; and (iii) other new works that do not constitute refurbishment or repair of existing facilities undertaken after commencement date; c.
Manage, exclusively possess, occupy, operate, repair, maintain, decommission and refurbish the existing facilities, except for the private deep wells set out in the concession agreement, the negotiations for the acquisition and control of which shall be the sole responsibility and for the account of the CWC; and manage, own, operate, repair, maintain, decommission and refurbish the new facilities; d.
Treat raw water and wastewater in CSEZ; e.
Provide and manage all water and wastewater related services like assisting locator of relocating of pipes and assess internal leaks; f.
Bill and collect payment from the customers for the services (with the exception of SM City Clark). SM City Clark has been carved out by virtue of Republic Act 9400 effective 2007 even if it is located within the franchise area; and g.
Extract raw water exclusively from all sources of raw water including all catchment areas, watersheds, springs, wells and reservoirs in CFZ free of charge by CDC.
MOA with ALI
In April 2010, the Parent Company and ALI entered into a MOA to establish a water utility services company which will manage and operate all water systems in Nuvali, as well as adjacent Ayala Land projects in Laguna. The Parent to internal and external water systems and will be responsible for all internal water systems.
The joint venture company has not been established as of December 31, 2013.
Guarantee Agreement with MWSAH
On November 22, 2012, the Parent Company signed as a guarantor of a credit facility entered into with MWSAH (the
Guarantee Agreement). The significant commitments of the Parent Company under the Guarantee Agreement are as follows: a.
To guarantee the creditor punctual performance of MWSAH of all its obligations under the Guarantee Agreement; b.
To pay, on demand, the amount as if it was the principal obligor in case MWSAH defaults; and c.
To indemnify the creditors on demand against any cost, loss or liability they incur as a result of MWSAH not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable under the
Guarantee Agreement on the date when it would have been due.
On August 12, 2013, the credit facility was cancelled.
Bulk Water Supply Agreement with MCWD
On December 18, 2013, CMWD entered into a bulk water supply agreement with MCWD. The significant provisions under the agreement with MCWD are as follow: a.
To provide potable and treated water at an aggregate volume of 18,000 cubic meters per day for the first year meter.
b.
CMWD shall ensure that the source shall be sustainable and 100% reliable at any day the duration of the agreement.
c.
CMWD shall construct a facility capable of delivering a production capacity of 35,000 cubic meters per day.
Maintenance of the same shall be on the account of CMWD.
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MANILA WATER ANNUAL REPORT 2013

CWC’s Concession Agreement
The significant commitments of CWC under its concession agreement with CDC are follows: a.
To pay franchise and rental fees of CDC; b.
Finance, design, and construct new facilities - defined as any improvement and extension works to (i) all existing facilities - defined as all fixed and movable assets specifically listed in the concession agreement; (ii) construction work - defined as the scope of construction work set out in the concession agreement; and (iii) other new works that do not constitute refurbishment or repair of existing facilities undertaken after commencement date; c.
Manage, exclusively possess, occupy, operate, repair, maintain, decommission and refurbish the existing facilities, except for the private deep wells set out in the concession agreement, the negotiations for the acquisition and control of which shall be the sole responsibility and for the account of the CWC; and manage, own, operate, repair, maintain, decommission and refurbish the new facilities; d.
Treat raw water and wastewater in CSEZ; e.
Provide and manage all water and wastewater related services like assisting locator of relocating of pipes and assess internal leaks; f.
Bill and collect payment from the customers for the services (with the exception of SM City Clark). SM City Clark has been carved out by virtue of Republic Act 9400 effective 2007 even if it is located within the franchise area; and g.
Extract raw water exclusively from all sources of raw water including all catchment areas, watersheds, springs, wells and reservoirs in CFZ free of charge by CDC.
MOA with ALI
In April 2010, the Parent Company and ALI entered into a MOA to establish a water utility services company which will manage and operate all water systems in Nuvali, as well as adjacent Ayala Land projects in Laguna. The Parent to internal and external water systems and will be responsible for all internal water systems.
The joint venture company has not been established as of December 31, 2013.
Guarantee Agreement with MWSAH
On November 22, 2012, the Parent Company signed as a guarantor of a credit facility entered into with MWSAH (the
Guarantee Agreement). The significant commitments of the Parent Company under the Guarantee Agreement are as follows: a.
To guarantee the creditor punctual performance of MWSAH of all its obligations under the Guarantee Agreement; b.
To pay, on demand, the amount as if it was the principal obligor in case MWSAH defaults; and c.
To indemnify the creditors on demand against any cost, loss or liability they incur as a result of MWSAH not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable under the
Guarantee Agreement on the date when it would have been due.
On August 12, 2013, the credit facility was cancelled.
Bulk Water Supply Agreement with MCWD
On December 18, 2013, CMWD entered into a bulk water supply agreement with MCWD. The significant provisions under the agreement with MCWD are as follow: a.
To provide potable and treated water at an aggregate volume of 18,000 cubic meters per day for the first year meter.
b.
CMWD shall ensure that the source shall be sustainable and 100% reliable at any day the duration of the agreement.
c.
CMWD shall construct a facility capable of delivering a production capacity of 35,000 cubic meters per day.
Maintenance of the same shall be on the account of CMWD.
Asset Purchase Agreement with LTI
On December 23, 2013, LAWC entered into an asset purchase agreement with LTI to acquire and operate its water operations division in Laguna. The significant provisions under the agreement with LTI follow: a.
LAWC shall offer water supply and sewerage services to all current or future locators in the Laguna Technopark, including future area(s) of expansion.
b.
LAWC shall ensure the availability of an uninterrupted 24-hour supply of water to all current and future locators, subject to interruptions resulting from the temporary failure of items of the Water Facilities (where LAWC acts promptly to remedy such failure) or required for the repair of the construction of the Water Facilities where such repairs or construction cannot be performed without interruption to the supply of water.
c.
Upon request from a current or future locator in the LTI for a connection to a water main, LAWC shall make such a connection as soon as reasonably practicable, upon payment of reasonable connection fees as determined by
LAWC.
d.
LAWC shall ensure at all times that the water supplied to current and future locators in LTI complies with
Philippine National Drinking Water Standards as published by the Department of Health (or successor entity responsible for such standards) and prevailing at such time. LAWC shall observe any requirement regarding sampling, record keeping or reporting as may be specified by law.
e.
LAWC shall make available an adequate supply of water for firefighting and other public purposes as the municipality and/or barangay in which LTI may reasonably request. LAWC shall not assess for such water used for firefighting purposes but may charge for all other water used for public purposes.
f.
LAWC shall make a supply of water available to current and future locators in LTI, including the areas(s) of expansion in the future.
31.
Provisions and Contingencies
Provisions for probable losses
On October 13, 2005, the Municipality of Norzagaray, Bulacan jointly assessed the Parent Company and Maynilad
Water Services, Inc. (the “Concessionaires”) for real property taxes on certain common purpose facilities purportedly are owned by the Republic of the Philippines and that the same are exempt from taxation.
December 31, 2013 and 2012, respectively.
Contingencies
The Group has various contingent liabilities arising in the ordinary conduct of business which are either pending decision by the courts or being contested, the outcomes of which are not presently determinable.
In the opinion of the management and its legal counsel, the eventual liability under these lawsuits and claims, if any, will not have a material or adverse effect on the Group’s financial position and results of operations.
32.
Notes to Cash Flow Statements
The Group’s noncash investing activities follow: a.
Contingent consideration for the purchase of KDW amounting to P
Note 13).
b.
LAWC’s payable to LTI amounting to P
147

DIVIDEND POLICY
Under the Company’s cash dividend policy, Common and Participating Preferred Shares are entitled to annual cash dividends equivalent to 35% of the prior year’s net income, payable semi-annually. Resident individuals
(regardless of nationality) are subject to 10% tax on dividends while resident corporations are subject to 0% tax. International residents and corporations are covered by their respective tax treaties between the Philippines and their home country.
KEY EVENTS FOR SHAREHOLDERS
For the year 2014, the Company will:
• Hold the Annual Stockholders meeting on April 4
• Release the quarterly results in May, August and
November
• Release the annual results not later than April 15
SHAREHOLDER SERVICES
For inquiries regarding dividend payments, change of address and account status, and lost or damaged stock certificates, please write or call:
Bank of the Philippine Islands
Stock Transfer Office
16F BPI Building
Ayala Avenue corner Paseo de Roxas
Makati City, Philippines
Tel No.: (632) 816-9067 and 68
Fax:
(632) 816-9898
(632) 845-5515
INVESTOR RELATIONS
For inquiries from institutional investors, analysts and the financial community, you may contact the Investor
Relations Office at:
Tel No.: (632) 917-5900 loc. 1414
E-mail:
(632) 981-8130 ir@manilawater.com
CORPORATE GOVERNANCE
For corporate governance inquiries, you may contact the
Corporate Governance Office at:
Tel No.: (632) 981-8129
E-mail: corpgov@manilawater.com
COMPANY CONTACT INFORMATION
Manila Water Company, Inc.
MWSS Administration Building
489 Katipunan Road, 1105 Balara,
Quezon City, Philippines
Tel No.: (632) 917-5900
Website: www.manilawater.com
148
MANILA WATER ANNUAL REPORT 2013

PORTRAITURE (BOARD OF DIRECTORS)
Paco Guerrero
Wig Tysmans
PORTRAITURE (MANAGEMENT COMMITTEE)
Erik Liongoren
OPERATIONAL PHOTOGRAPHY
Ding Carpio
Aaron Co
Eric Liongoren
Marq Oliver
Patty Pineda
CONCEPT, CONTENT DESIGN AND LAYOUT
K2 Interactive (Asia) Inc.
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MWSS Administration Building
489 Katipunan Road, Balara
Quezon City 1105 Philippines www.manilawater.com